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Federal 
Incorporation 

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Federal  Incorporation 


TWO    DEBATES 


The  Constructive  and  Rebuttal  Speeches  of  the 
representatives  of 


The  University  of  Chicago  vs.  University  of  Michigan 

AND 

The  University  of  Chicago 

vs. 

Northwestern  University 

In  the  Tenth  Annual  Contests  of  the  Central 
Debating  League, 

JANUARY  17,  1908 


QUESTION: 

"Resolved,    That  all  corporations  engaged  in  Interstate  Commerce  should  be 

required  to  take  out  a  Federal  Charter  on  such  terms  as 

Congress  may  by  law  prescribe— granting 

that    such    legislation    would 

be  constitutional." 


Published  by 
THE    DELTA    SIGMA    RHO 

University  t)f  Chicago  Chapter 
19  11 


FOREWORD 


Although  these  debates  were  held  in  1908,  it  is  believed  that  their 
publication  now  is  timely.  Federal  Incorporation  is  one  of  President 
Taft's  favorite  policies.  He  recommended  its  adoption  by  Congress  at 
the  late  session,  and  apparently  intends  to  press  it  at  the  coming  session. 
The  sentiment  in  favor  of  Federal  Incorporation  has  deepened  of  late, 
making  the  question  a  live  one  again.  The  basis  of  the  contention  has 
not  shifted  since  the  debates  of  1908.  Every  argument  made  herein  ap- 
plies with  full  force  today,  although  later  happenings  furnish  more  light 
by  way  of  illustration. 

This  is  the  second  in  the  series  of  University  of  Chicago  debates  to 
be  brought  out  by  the  local  Delta  Sigma  Rho.  We  can  wish  for  it  no 
better  reception  than  that  accorded  our  first  debate  on  the  Federal  Grad- 
uated Income  Tax. 

CHARLES  F.  McELROY, 

Debating  Coach. 

University  of  Chicago ,  November  1,  1911.  , 


227778 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/federalincorporaOOcentrich 


Chicago  vs.  Michigan 

JANUARY  17,  1908 


MANDEL  HALL 

UNIVERSITY    OF     CHICAGO 


PROF.  FLOYD  R.  MECHEM 

Chairman 

Judges: 

R.  D.  Marshall,  Justice  Supreme  Court  of  Wisconsin 

John  H.  Gillette,  Justice  Supreme  Court  of  Indiana 

William  H.  Seaman,  Justice 
United  States  Circuit  Court  of  Appeals 

(Seventh  Circuit) 


Chicago  Team:  Michigan  Team: 

John  H.  Liver  M.  L.  Burroughs 

James  Pinckney  Pope  S.  J.  Wettriek 

Thomas  Harvey  Sanderson  George  Eves 

Affirmative:  Chicago 
Negative:  Michigan 

DECISION-MICHIGAN  WON 


The    Debate 


FIRST  AFFIRMATIVE,  MR.  LIVER,  CHICAGO. 

Mr.  President,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  last  twenty-five  years  have  witnessed  a  remarkable  ^ncrease  in 
the  number  of  our  corpora-tions,  and  a  corresponding  change  in  their  char- 
acter and  business.  The  early  corporations  rarely  did  business  outside 
their  own  states,  but  today  nearly  every  corporation  has  its  customers  and 
stockholders,  buys  its  supplies,  and  sells  it  products  in  every  state  of  the 
union.  In  the  words  of  Judge  Dill,  "Our  corporations  have  overleaped 
the  boundaries  of  the  states,  until  their  financial  roots  extend  down  into 
every  commonwealth  and  municipality  in  this  entire  land."  So  true  is 
this,  that  there  has  come  a  demand,  voiced  by  such  men  as  Professor  Wil- 
gus  of  the  University  of  Michigan,  and  President  Roosevelt,  that  our 
corporations  be  directly  chartered  and  controlled  by  the  national  govern- 
ment.   It  is  this  proposition  that  we  present  tonight. 

Our  resolution  provides  that  all  corporations  engaged  in  interstate 
commerce  must  obtain,  from  the  national  government,  instead  of  from 
the  states  as  at  present,  charters  defining  their  powers  and  organization. 
The  conditions  upon  which  Congress  will  grant  these  charters  will  reflect 
the  public  policy  of  the  entire  nation  on  this  subject.  And  in  so  far,  of 
course,  as  the  proposed  national  corporations  engage  in  business  confined 
to  the  separate  states,  they  will  remain  subject  to  state  regulation,  because 
Congress  cannot,  under  the  constitution,  concern  itself  with  anything  ex- 
cept their  inter-state  business. 

The  affirmative  will  uphold  this  proposition  upon  four  grounds: 
First,  that  there  are  evils  in  our  corporations  at  the  present  time,  serious 
and  national  in  their  scope.  Second,  that  these  evils  are  inherent  in  the 
system  of  incorporation  by  tKe  various  states.  Third,  that  for  these 
evils,  federal  incorporation  is  the  only  logical  aii3""  effective  remedy. 
Fourth,  that  national  incorporation  would  be  a  wise  extension  of  national 
activity.  In  short,  in  contrast  to  a  system  of  state  control  of  national 
corporations,  we  propose  a  system  of  national  control. 

It  is  true,  as  doubtless  will  be  contended  by  the  negative,  that  some  of 
our  corporations  are  honest  and  law  abiding.  But  in  other  corporations 
there  are  grave  evils,  which  must  be  remedied,  not  for  the  sake  of  the 
public  alone,  but  as  much  for  the  sake  of  the  good  corporations,  which 
suffer  by  association.  These  evils  may  be  roughly  grouped  under  three 
heads,  viz.,  over-capitalisation,  interholding  of  stocks,  and  dishonesty  in 
promotion  and  management. 


Debate;:     Fi:dkrai,  Incorporation 

The  first  of  these  evils,  over-capitalization,  is  illustrated  by  Charles 
E.  Russell,  in  Everybody's  Magazine  for  December,  1907.  He  states 
that  in  1890  five  tobacco  companies  with  $400,000  of  assets,  less  than  half 
a  million,  were  consolidated  into  a  New  Jersey  corporation  with  a  capital 
stock  of  twenty-five  millions.  Small  competitors  were  absorbed  and  issue 
upon  issue  of  stock  followed  arbitrarily  from  time  to  time,  until  in  1901, 
the  total  stock  issued  had  reached  the  two  hundred  million  mark.  And 
in  the  present  year,  the  total  capitalization  of  this  American  Tobacco 
Company,  including  its  subsidiary  corporations,  has  reached  the  enormous 
figure  of  five  hundred  million,  whereas  a  liberal  estimate  of  the  value  of 
the  actual  assets  of  this  corporation  would  be  but  a  fraction  of  that 
amount. 

Again,  the  American  Chicle  Company  is  capitaHzed  at  ten  times  the 
value  of  its  assets,  and  these  are  but  two  of  numerous  instances  that 
might  be  cited,  indicative  of  the  almost  universal  tendency  toward  over- 
capitalization and  stock  watering  in  this  country  today. 

What  are  the  consequences  of  this  ?  First,  the  public,  by  the  induce- 
ments of  skillful  promoters,  is  led  to  invest  in  the  stocks  of  a  corpora- 
tion, expecting  thereby  to  acquire  a  proportional  share  in  its  assets,  where- 
as in  fact,  every  dollar  worth  of  assets  is  made  to  do  service  for  many 
dollars  worth  of  stock,  and  the  inevitable  result  is  one  of  two  things: 
either  the  investors  lose  by  the  fall  in  the  value  of  the  stocks  when  the 
facts  become  known,  or,  if  the  corporation  holds  a  monopoly,  the  consum- 
ing public  is  forced  to  pay  prices  sufficiently  high  to  yield  dividends  upon 
a  capitalization  of  several  times  the  actual  amount  invested. 

Both  of  these  obvious  evils  of  stock  watering  are  illustrated  by  the 
case  of  the  Metropolitan  Railway  in  New  York.  It  reveals  how  stock  in 
the  Metropolitan,  floated  by  the  influence  of  such  men  as  Whitney  and 
Ryan  at  269  now  goes  begging  at  35,  the  difference  representing  a  loss  to 
investors  of  $234  on  every  share  of  this  stock.  And  moreover,  largely 
because  of  this  stock  watering,  the  necessity  of  saving  to  stockholders 
even  the  little  value  which  is  left,  compels  the  laborers  in  New  York  to 
pay  five-cent  fares  today,  when,  had  this  water  been  kept  out  the  Metro- 
poHtan  could  well  afford  to  charge  but  three  cent  fares  and  still  declare 
a  handsome  dividend  upon  its  just  capitaHzation. 

The  same  is  true  of  sugar.  The  late  President  Havemeyer  testified 
before  the  Industrial  Commission  that  while  the  capitalization  of  his  trust 
was  seventy  million  all  its  equipment  could  be  duplicated  at  thirty  mil- 
lion. Nevertheless  it  will  not  be  denied  that  the  price  of  sugar,  which 
you  and  I  and  all  of  us  have  to  pay,  is  fixed  to  yield  dividends  on  the 
seventy-five  and  not  upon  the  thirty  million. 

The  second  great  evil  is  the  holding  corporation.    By  this  we  mean 


Debate;:    Federal  Incorporation 

« 
a  corporation  organized  for  the  sole  purpose  of  holding  shares  of  stock 
in  other  corporations.  To  illustrate,  we  will  take  a  corporation  capital- 
ized at  100  million.  Three  men,  who  own  51  per  cent  of  the  stock,  can 
organize  a  second  corporation  which  dominates  the  policy  of  the  first,. 
Two  of  these  men,  who  together  own  26  million  of  the  stock,  a  majority 
of  the  51,  can  organize  a  third  corporation  within  the  other  two,  which 
dominates  the  policies  of  both,  and  one  of  these  two  men,  who  owns  14 
million  of  the  stock  can  organize  still  another  corporation,  which  will 
control  absolutely  all  the  croporations  in  this  series  ending  with  the  100 
million  dollar  corporation  with  which  we  started. 

This  is  not  a  fiction,  but  the  common  practice  by  which  monopolistic 
control  is  secured,  and  the  evil  of  it  is  that  it  permits  a  man  with  a  com- 
paratively small  amount  of  capital  to  dominate  a  large  amount  of  wealth. 
Thus  the  secret  of  Harriman's  control  of  railways  lies  in  his  astute  organi- 
zation of  series  upon  series  of  holding  corporations,  such  as  the  notorious 
Railway  Securities  Company,  by  which  he  is  enabled  to  dominate  an 
amuont  of  wealth  many  times  greater  than  even  a  man  with  his  vast 
resources  could  otherwise  control. 

This  fact  suggests  the  second  abuse  of  holding  companies,  which  is, 
that  corporations  held,  instead  of  being  administered  in  the  interests  of 
their  stockholders,  become  mere  tools  for  exploitation  in  the  hands  of  the 
corporations  holding.  And  this  is  why  it  is  that  a  court  of  equity,  here 
in  Illinois,  entertains  the  suit  of  Stuyvesant  Fish  to  enjoin  the  voting  of 
Illinois  Central  Stock  held  by  the  Railway  Securities  Company  for  the 
Union  Pacific.  Not  because  the  court  is  concerned  with  the  personal  inter- 
ests of  Mr.  Fish,  but  because  the  stockholders  in  the  Illinois  Central  are 
entitled  to  have  their  property  voted  and  administered  in  the  interests  of 
the  Illinois  Central,  and  not  as  a  pawn  in  the  game  of  the  Union  Pacific. 

The  third  class  of  evils,  which  is  broad  enough,  indeed,  to  cover  a 
multitude  of  sins,  is  dishonesty  in  promotion  and  management.  In  the 
brief  time  allotted,  we  can  hope  to  mention  but  a  few  of  the  commoner 
phases  of  this  abuse.  They  consist  of  misrepresentations  to  the  public, 
through  false  prospectuses  and  financial  reports,  and  the  misappropria- 
tion of  corporate  funds.  By  this  we  refer  not  to  bold  embezzlement, 
such  as  a  real  corporation  magnate  would  deem  stupid,  but  to  such  prac- 
tices as  the  payment  of  dividends  out  of  capital  stock,  diverting  the  pro- 
ceeds of  loans,  and  making  secret  profits  out  of  corporation  contracts. 
If  the  same  board  of  directors  controls  a  railroad,  a  construction  company 
and  a  bank  in  which  the  deposits  of  all  are  kept,  it  can  readily  be  seen, 
how,  in  making  contracts  between  themselves  as  one  corporation  and  them- 
selves as  another  corporation,  abuses  can  creep  in.  These  abuses,  arc, 
unfortunately,  familiar  to  all  of  us. 


s> 


DEBATE:    Federal  Incorporation 

Such,  then,  are  the  evils  of  present  day  corporations, — Over-capitali- 
zation, Interholding  of  Shares,  and  Dishonesty  in  Promotion  and  Man- 
agement, and  inasmuch  as  the  present  system  of  corporate  creation  and 
control  offers  no  relief,  we  of  the  affirmative  submit  that  their  seriousness 
can  hardly  be  overestimated. 

We  come  now  to  the  essence  of  this  whole  discussion.     What  is  it 
I  that  permits  and  fosters  these  abuses?     It  is  the  system  of  incorporation 
il)y  the  various  states.     By  this  we  do  not  mean  to  imply  that  no  states 
I  have  good  incorporation  laws,  for  some,  like  Massachusetts,  have.     But 
'other  states,  conspicuously  Delaware,  West  Virginia  and  New  Jersey 
^  have  loose  codes,  and  naturally  it  is  states  like  these  that  charter  the  ma- 
"■  jority  of  our  corporations.     The  charters  obtained,  these  corporations  go 
I  to  the  good  states  and  secure  permission  to  do  business  as  foreign  corpo- 
!  rations,   which  is  uniformly  granted,  because   to   refuse   domestication 
means  a  corresponding  loss  in  the  business  of  the  state.     Under  this  sys- 
tem it  is  not  strange  that  we  have  corporations  operating  under  charters 
I  which  regulate  but  feebly,  if  at  all,  nor  is  it  surprising  that  our  promoters 
*|  seek  out  the  states  which  suit  them  best. 

I  None  of  our  states  impose  a  limit  upon  capitalization  and  in  only  one 

state,  little  Massachusetts,  is  the  promoter  asked  to  publish  the  basis  upon 
)  which  he  computes  it.  Thus  if  he  wishes  to  fix  the  capital  at  100  thou- 
sand when  the  assets  of  the  corporation  are  worth  but  30,  plenty  of  states 
can  be  found  which  will  permit  it.  And  if  he  wishes  to  acquire  control 
f  by  means  of  a  holding  company,  states  can  be  found  which  will  permit 
that,  also.  And  if  he  wishes  freedom  from  control,  states  there  are 
which  impose  no  duties  beyond  the  payment  of  the  fees.  In  fact  so  far 
1iave  some  states  gone  in  liberalizing  their  laws  for  the  purpose  of  attract- 
ing corporations,  that  charters  can  be  had  for  the  asking,  where  there  is 
no  franchise  tax ;  no  limit  on  capitalization ;  no  amount  of  stock  required 
to  be  subscribed;  no  examination  of  books;  the  office  may  be  kept  any- 
where and  business  of  any  kind  may  be  done  anywhere ! 

Under  the  present  system  of  state  incorporation,  we  can  entertain  no 
hope  for  unified  action  on  the  part  of  the  states,  by  which,  alone,  this  situ- 
ation could  be  relieved.  The  report  of  the  American  Bar  Association  for 
1906  states  flatly  in  reference  to  a  uniform  incorporation  law  that  the 
voluntary  co-operation  and  concerted  action  by  the  states  is  not  to  be 
expected.  And  if  this  were  undertaken,  so  long  as  a  single  state  or  two 
held  out,  we  should  be  in  the  same  deplorable  situation  still. 

Admittedly,  then,  we  cannot  look  to  the  system  of  state  incorpora- 
tion for  the  removal  of  the  evils  which  are  inherent  in  it ;  this  system  of 
which  Commissioner  Garfield  says  that  its  diversity  is  such  that  in  opera- 
tion it  amounts  to  anarchy.     The  inference  is  irrefutable.  Ladies  and 


Debate:    FederaIv  Incorporation 

Gentlemen,  that  we  must  look  to  some  other  system  for  relief.  And  as 
my  colleagues  who  follow  me  will  show,  that  system  is — National  Incor- 
poration. 

FIRST  NEGATIVE,  MR.  BURROUGHS,  MICHIGAN. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  preceding  speaker  has  very  vividly  portrayed  the  evils  that  attend 
our  present  system  of  corporate  control.  But  we  are  ont  here  to  deny 
the  corporate  evils,  nor  are  we  here  to  defend  present  conditions.  The 
affirmative's  cause  so  far,  then,  has  not  availed  them  much,  but  is  rather 
in  our  favor,  for  we  are  mindful  of  the  evils  and  are  just  as  anxious  to 
remedy  them  as  the  gentlemen  from  Chicago.  In  fact  the  speaker  has 
done  for  us  what  we  lack  the  time  to  do, — namely,  to  discuss  a  matter  of 
such  common  knowledge  and  seldom  disputed — the  existence  of  the  cor- 
porate evils.  We  tell  the  gentlemen  that  we  are  in  sympathy  with  any 
measure  that  will  solve  these  evils.  We  agree  that  something  should  be 
done;  but  when  they  propose  Federal  Incorporation  as  the  remedy  for 
corporate  evils,  then  we  must  part  company. 

Now  the  gentlemen  have  assured  us  that  the  issue  in  this  debate  is, 
Federal  control  over  interstate  commerce:  but  we  cannot  agree  with 
them.  The  real  issue  is  not  that  by  any  means.  It  is,  clear-cut  and  dis- 
tinct, shall  the  Federal  Government  control  the  corporations  which  are 
engaged  in  interstate  commerce,  and  shall  that  control  take  the  form  of 
a  compulsory  Federal  charter?  The  speaker  told  you  that  President 
Roosevelt  advocates  a  Federal  charter  for  interstate  corporations.  But 
he  has  misquoted  President  Roosevelt,  because  the  President  in  his  mes- 
sage merely  suggested  a  Federal  charter  for  the  transportation  com- 
panies alone,  and  particularly  pointed  out  that  what  we  need  is,  not  an 
extension  of  Federal  power  or  authority  over  any  corporations,  but  more 
Federal  activity  in  matters  of  corporate  control. 

But  before  continuing  further  in  the  discussion  of  this  resolution,  let 
us  have  a  definite  understanding  as  to  its  sweeping  character.  It  is  strik- 
ing in  three  particulars :  first,  it  calls  for  National  Incorporation  instead 
of  State  Corporation;  second,  it  would  compel  every  corporation  doing 
interstate  business,  large  and  small,  honest  and  dishonest,  to  surrender 
its  State  birthright  and  re-incorporate  at  Washington ;  ^third,  it  would 
make  the  corporations  and  the  people  accept  any  law  that  Congress  might 
pass.  The  gentlemen  must  then  establish  the  wisdom  of  these  three 
radical  measures. 

They  must  give  us  reasonable  assurance  that  Congress  will  pass  a 
good  law ;  that  such  a  law  will  be  adequately  enforced,  will  remedy  pres- 
ent evils,  and  not  do  more  harm  than  good. 


Debate::    FederaIv  Incorporation 

They  must  show  the  necessity  of  compelHng  the  Battle  Creek  Organ 
company,  which  sells  a  few  organs  in  Ohio  and  Illinois,  to  re-incorporate 
at  Washington  along  with  the  United  States  Steel  company,  which  does 
business  the  world  over.  They  must  establish  the  wisdom  of  subjecting 
small  corporations  to  the  same  stringent  rules  and  the  same  publicity  by 
which  we  curb  a  billion-dollar  trust.  They  must  convince  you  that  a 
corporation  doing  only  1%  of  its  business  outside  of  Illinois,  should  be 
regulated  and  controlled  not  by  the  State  of  Illinois  but  by  the  Federal 
Government. 

The  position  of  our  opponents  then  is  briefly  this : 

They  see  the  trust  evils  and  would  fly  to  Congress  for  a  National 
Compulsory  Re-Incorporation  Act. 

We  see  these  evils  but  do  not  believe  in  our  opponents'  cure. 

We  object  to  Federal  Incorporation  because  it  is  revolutionary  and 
would  be  fraught  with  disastrous  results.  In  the  first  place,  it  would 
by  one  blow  strike  down  the  laws  and  regulations  built  by  the  combined 
efforts  of  our  most  eminent  statesmen  and  jurists.  Our  statute  books, 
our  Federal  and  State  Reports  abound  in  legislation  and  doctrines  which 
fix  the  dual  status  of  corporations, — on  the  one  hand  to  the  State,  on  the 
other  to  the  Nation.  This  aggregate  of  corporate  law  and  regulation  is 
not  only  of  gradual  growth,  but  it  constitutes  the  exponent  of  more  than 
one  hundred  years  of  careful  and  persistent  effort  to  make  more  effective 
and  more  harmonious  our  system  of  corporate  control.  It  places  under 
the  dominion  of  the  State  those  matters  of  corporate  concern  which  most 
vitally  affect  the  State  and  with  which  the  State  is  most  competent  to  deal. 
But  those  corporate  matters  which  more  directly  concern  the  Nation  and 
which  cannot  be  regulated  by  the  State  are  given  to  the  National  Govern- 
ment. Both  the  State  and  the  Nation  play  an  important  part  in  the  gov- 
ernment and  control  of  corporations.  But  the  plan  of  the  affirmative 
would  destroy  this  dual  system  of  supervision.  It  would  annihilate  all 
co-operation  of  State  and  Federal  control,  and  demolish  all  law  and  regu- 
lation based  upon  it.     We  fear  the  consequences  of  so  radical  a  change. 

In  the  next  place  this  measure  is  revolutionary  because  it  would 
result  in  an  unjust  impairment  of  the  Obligations  of  contract.  Many 
corporations  doing  an  interstate  business  now  hold  from  the  states  creat- 
ing them  certain  franchises  and  privileges,  which  derive  special  value 
from  the  fact  that  they  are  local  in  character.  Now  upon  the  assurance 
of  protection  which  the  Federal  Government  guarantees  to  such  contract 
obligations,  not  only  have  the  corporations  acquired  valuable  property 
rights,  but  stockholders  have  made  large  investments  on  the  faith  of 
these  privileges  granted  by  the  State.     But  as  these  franchises  are  local 

8 


Debate:     Federal  Incorporation 

only  the  State  can  grant  them:  hence  under  Federal  Incorporation  such 
rights  must  fail.  Is  it  fair  to  the  corporation  or  the  stockholder  that 
valuable  rights  should  thus  be  unscrupulously  taken  away  and  forever 
destroyed  ? 

Again,  this  measure  would  take  away' from  the  State  its  corporation 
taxes,  and,  as  a  result,  not  only  would  state  revenues  be  diminished,  but 
the  burden  of  taxation  would  fall  on  those  least  able  to  bear  it.  This 
would  work  a  three- fold  injustice :  it  would  deprive  the  State  of  benefits 
to  which  it  is  justly  entitled;  it  would  thrust  upon  the  State  the  same 
responsibility  of  police  protection  but  with  less  compensation  for  it;  it 
would  impose  a  heavier  tax  on  the  small  property  owner. 

Each  year  the  states  realize  more  and  more  revenue  from  corpora- 
tion taxes.  The  state  of  Pennsylvania  supports  her  public  schools  by 
this  tax  alone.  The  state  of  New  York  pays  almost  her  entire  running 
expenses  with  it.  Between  the  years  of  1899  and  1902,  her  tax  rate  on 
personal  property  decreased  from  2.49  to  .13  mills  on  the  dollar.  Her 
corporation  tax  increased  from  a  mere  pittance  in  1899  to  more  than 
$6,000,000  in  1902.  Yet  at  one  blow  the  gentlemen  would  sweep  away 
this  fruitful  source  of  revenue  and  the  right  to  levy  it ;  for  no  state  can 
levy  a  tax  on  a  corporation  of  the  United  States.  This  precise  point  is 
held  in  Railroad  Co.  v.  Penniston,  in  Bctstern  v.  Iowa  and  in  Farmers 
and  Mechanics  Bank  v.  Deering.  In  short  this  plan  would  deprive  the 
states  of  nearly  all  but  the  general  property  tax  which  the  best  authorities 
concede  to  be  inherently  bad.  The  gentlemen  would  adopt  a  measure, 
unjust  to  every  state,  inequitable  and  unfair  to  every  poor  tax-payer.  Do 
they  seriously  contend  that  a  remedy  fraught  with  such  results  is  the 
best  solution  for  the  present  evils? 

We  further  object  to  this  resolution  because  it  is  over-centralizing, 
both  politically  and  industrially,  and  un-American  in  its  tendencies. 

The  framers  of  our  constitution  thought  it  wise  to  leave  to  the  States 
such  powers  as  could  be  effectively  exercised  by  them,  and  gave  the 
Federal  Government  only  such  powers  as  were  necessary  to  carry  on  its 
functions.  The  powers  of  the  one  were  to  constitute  a  check  and  balance 
upon  the  powers  of  the  other.  Yet  our  opponents  ask  that  this  balance 
be  broken,  that  these  important  powers  of  creating,  controlling,  and  legis- 
lating for  corporations  be  taken  from  the  states  and  placed  under  the 
exclusive  control  of  the  National  sovereignty, — and  what  is  worse — ^with 
no  limitations  as  to  how  they  shall  be  exercised.  Have  we  reached  a 
stage  in  our  progress  when  such  an  enormous  centralization  of  power  is 
necessary?  Why  tear  down  our  dual  form  of  government  and  place 
90%  of  the  business  of  this  country  in  the  hands  of  a  central  power? 


Debate:    Federal  Incorporation 

Can  the  gentlemen  justify  this  under  any  theory  of  American  poHtical 
science  or  evolution?  We  believe  with  Lincoln  that  "the  maintenance 
inviolate  of  the  right  of  each  state  to  control  and  regulate  its  domestic 
institutions  is  essential  to  that  balance  of  power  upon  which  the  per- 
fection and  endurance  of  our  political  fabric  depend." 

But  this  measure  not  only  tends  towards  political  centralization  but 
towards  industrial  centralization.     The  history  of  our  commercial  prog- 
ress bears  ample  proof  that  most  has  been  accomplished  by  the  large 
corporations.     Scarcely  one  of  these  is  engaged  in  business  exclusively 
local.    And  because  of  this,  under  the  plan  proposed,  the  State  must 
surrender  relations  with  all  such  corporations.     No  longer  can  it  grantj 
concessions  to  invite  corporations  within  its  borders.     The  growth  of  un-^i 
developed  sections,  and  the  fostering  of  new  industries  in  every  state' 
will  be  practically  at  the  mercy  of  Congress.     A  state  which  heretofore 
has  been  able  to  invite  capital  and  enterprise  because  of  the  inducem.ents 
it  could  offer  will  be  almost  helpless  to  develop  its  resources  or  further 
its  interests. 

Nor  are  these  the  only  dangers.  Think  of  the  amount  of  corruption 
such  a  condition  might  perpetrate.  Before  a  member  of  Congress  from 
Illinois  could  obtain  the  support  of  his  associates  for  a  measure  beneficial 
to  the  people  of  this  State,  he  might  be  compelled  to  pledge  his  vote  for 
many  measures  detrimental  to  the  people  of  other  communities.  And 
so  with  every  member  of  our  National  Legislature.  Our  Congress  would 
become  a  mere  bartering  establishment  for  the  exchange  of  votes  on 
corporate  legislation.  In  fact,  it  is  fairly  probable  that  Congress  would 
be  thronged  with  demagogues  and  lobbyists,  armed  with  every  means 
possible  to  defeat  popular  legislation  and  secure  the  passage  of  laws 
favorable  to  special  classes.  Industrial  centralization  and  its  dangers  are 
alone  sufficient  to  defeat  this  resolution. 


SECOND  AFFIRMATIVE,  MR.  POPE,  CHICAGO. 

Mr.  President,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  negative  speaker  who  has  just  closed  has  made  the  argument 
that  national  incorporation  would  be  an  extremely  radical  measure  be- 
cause it  would  include  many  incorporations  that  are  essentially  local  in 
character  and,  as  they  say,  need  no  national  regulation. 

In  the  first  place,  it  is  necessary  to  include  all  interstate  corporations 
in  our  measure  for  evils  exist  in  interstate  corporations  of  all  sizes.  The 
gentleman  says  that  there  are  no  evils  in  small  interstate  corporations. 
Let  us  see.  About  a  year  ago,  a  small  interstate  corporation,  known  as 
the   Arizona   Gold   Mining   Company,  chartered   in   Arizona,   unloaded 

10 


DEBATE:    Fed^rAIv  Incorporation 

$42,000  of  worthless  stock  upon  the  people  of  a  small  community  near 
Randolph,  Wisconsin.  The  cases  of  this  kind  are  too  numerous  to  men- 
tion. Again,  the  American  Fisheries  Company,  according  to  Mr.  Collier 
in  his  book  on  Trusts,  a  small  interstate  corporation  chartered  in  Maine, 
was  capitalized  at  $10,000,000  and  failed  in  a  short  time  for  $190,000. 
These  are  but  a  few  instances  of  the  evils  that  are  to  be  found  in  small 
interstate  corporations,  and  show  beyond  question  that  all  sizes  of  inter- 
state  corporations  need  effective  regulation. 

In  the  second  place,  the  provisions  of  our  measure  will  be  such  that 
no  honest  corporation  will  be  injured,  for  the  provisions  will  be  made 
to  correct  abuses,  and  where  no  abuses  exist  there  will  be  no  disturbance. 

Finally,  the  division  of  corporations  along  the  line  of  interstate 
commerce  is  the  only  logical  and  reasonable  division.  We  contend  that 
as  soon  as  a  corporation  begins  to  do  interstate  commerce  it  is  to  some 
extent  national  and  should  to  that  extent  have  national  control.  Of 
course,  as  we  have  indicated,  the  states  will  still  have  control  over  the 
intra-state  business  of  the  corporation.  Therefore,  if  the  business  of 
the  corporation  is  essentially  local  it  will  be  regulated  essentially  by  local 
authorities.  Moreover,  any  measure  that  the  gentleman  of  the  negative 
may  propose  must  include  all  interstate  corporations,  or  they  must  draw 
a  workable  and  reasonable  dividing  line. 

In  reigard  to  the  arguments  that  our  plan  would  rob  the  states  of  an 
important  source  of  revenue,  that  such  a  measure  would  be  centralizing, 
that  it  would  create  a  financial  disturbance,  we  shall  show  in  the  pre- 
sentation of  our  case  that  none  of  these  objections  are  serious. 

My  colleague  has  shown  that  the  present  system  of  state  regulation 
of  corporations  has  given  rise  to  three  great  classes  of  evils — overcapi- 
talization, interholding  of  stocks,  and  dishonesty  in  promotion  and  man- 
agement. Moreover  he  has  indicated  that  these  evils  cannot  be  remedied 
by  the  states,  except  by  the  adoption  of  a  common  policy  by  forty-six 
separate  sovereignties  for  which  it  is  vain  to  hope.  It  is  our  purpose  to 
show  that  these  evils  can  be  remedied  by  national  incorporation. 

There  are  but  two  practical  methods  of  controlling  corporations  en- 
gaged in  interstate  commerce:  (1)  State  incorporation  supplemented 
by  national  regulation,  and  (2)  National  incorporation  and  national  regu- 
lation. 

The  first  method — ^that  of  state  incorporation  supplemented  by 
national  regulation —  is  the  present  system.  Under  this  system  Congress 
has  power  over  interstate  commerce,  but  the  corporations  are  created  and 
controlled  by  the  individual  states.  This  power  over  interstate  commerce 
does  not  enable  Congress  to  remedy  the  evils  which  we  have  set  before 

11 


debate;:    F^derai,  Incorporation 

you  tonight,  because  the  evils  are  rooted  in  the  very  organization  and 
charters  of  the  corporations  which  are  controlled  entirely  by  the  states, 
and  so  long  as  these  matters  are  without  the  jurisdiction  of  Congress  it 
can  deal  with  the  evils  to  which  they  give  rise  only  by  makeshifts  and 
palliatives  which  are  not  and  cannot  be  a  permanent  cure.  On  the  other 
hand,  there  can  be  no  hope  for  concentrated  action  and  effective  regula- 
tion by  the  separate  states  who  find  it  to  their  selfish  interests  and  desire, 
as  they  always  will,  to  encourage  incorporation  by  loose  laws.  In  fact 
so  long  as  one  state  like  New  Jersey  or  Delaware  can  defeat  the  good 
legislation  of  all  the  other  states,  by  attracting  corporations  from  states 
that  have  good  laws,  the  existing  evils  will  continue.     In  short,  we  are 

,  confronted  with  the  situation  that  Congress  cannot  remedy  these  evils, 
/  and  the  states  do  not  because  they  will  not  act  in  concert.  It  is  from  this 
f     situation  that  we  seek  relief  through  the  only  remaining  alternative — 

/    National  Incorporation. 

So  inevitable  is  this  conclusion  that  we  venture  to  predict  that  our 
friends  from  Michigan,  although  they  will  stop  short  of  national  in- 
corporation, will  advocate  some  extension  of  national  control.  When 
they  reach  that  point  we  shall  ask  you  to  consider  whether  their  measure 
will  reach  the  heart  of  the  corporation  problem  as  national  incorporation 
will  reach  it.  We  venture  now  to  say  that  it  cannot,  because  the  evils 
which  we  have  been  discussing  originate  in  the  corporation  charter  and 
1^  the  control  or  lack  of  control  is  based  upon  it.  It  is  the  charter  which 
regulates  all  the  essential  elements  in  the  life  of  the  corporation — the 
'prorribtion,  the  organization,  the  capitalization,  the  increase  and  decrease 
in  stock,  time  and  place  of  stockholders'  meetings,  the  election  of  officers 
and  directors,  the  records  of  meetings  and  books  of  transfer,  the  balance 
sheet,  the  accounts,  liability  for  torts,  contracts,  and  crimes,  the  voting 
of  stock,  declaring  of  dividends,  inspection  of  books,  assignment  of 
shares,  the  dissolution  of  the  corporation,  liabilities  to  creditors  for  false 
;  reports  and  mismanagement  of  funds,  and  all  other  matters  that  in  any 
f  way  relate  to  the  creation  and  conduct  of  the  corporation.  Therefore,  it 
is  of  vital  concern  to  the  public  whether  a  corporation  is  organized  under 
a  good  or  bad  charter. 

The  few  states,  like  Massachusetts,  which  deal  effectively  with 
corporations  do  so  by  virtue  of  an  intelligent  supervision  of  the  corpora- 
tion charter.  But  as  we  have  pointed  out,  concerted  action  by  all  the  states 
is  out  of  the  question,  and  hence  if  the  charters  of  the  great  mass  of  cor- 
porations engaged  in  interstate  commerce  are  to  be  framed  in  a  manner 
to  subserve  the  rights  of  the  public,  the  law  controlling  them  must  come 
from  the  National  Government,  from  which  source  alone  can  unified 

12 


Dbbats:     Federai,  Incorporation 

action  be  secured.  This  suggests  the  vital  question  in  the  debate:  Are 
our  interstate  corporations  to  be  chartered  according  to  a  Federal  law, 
which  will  undoubtedly  be  better  than  the  laws  of  the  majority  of  the 
states,  or  are  the  charters  of  such  corporations  to  be  granted  fortuitously 
and  naturally,  in  the  main,  by  the  states  with  the  loosest  corporation  laws  ; 
for  New  Jersey,  Delaware,  and  West  Virginia,  which  have  laws  that, 
according  to  Mr.  Garfield,  Commissioner  of  Corporations,  are  simply 
vicious,  charter  three-fourths  of  all  the  important  industrial  corporations. 

Let  us  now  assume  that  a  national  corporation  law  is  adopted  and 
examine  it  in  its  application  to  the  evils  which  we  have  discussed.  We 
cannot  indicate  exactly  the  legislation  which  Congress  would  enact,  but 
we  may  state  some  of  the  possibilities  of  a  national  law. 

First,  as  to  dishonesty  in  promotion  and  management.  We  contend 
that  these  evils  are  fundamental  in  our  corporation  problem,  and  that 
all  others  are  based  upon  them.  To  meet  them  Congress  might  prescribe 
by  its  charter  that  every  corporation  should  be  required  to  submit  at 
stated  intervals  full  reports  of  its  assets,  liabilities,  earnings,  and  ex- 
penditures. These  reports  should  be  mailed  to  the  stockholders,  and  a 
summary  of  such  reports  should  be  prepared  by  the  government  com- 
missioner of  corporations  and  published  for  distribution  to  investors  at 
cost  price  in  the  same  way  that  imperfect  reports  are  now  prepared  and 
distributed  by  such  private  agencies  as  Dun's  and  Bradstreet's,  and  trade 
journals  like  the  Chicago  Economist.  But  the  government  need  not  rely 
implicitly  upon  the  reports  of  the  corporation.  In  case  the  government 
received  a  complaint  or  had  reason  to  suspect  that  such  reports  were  not 
true,  it  should  employ  expert  inspectors  to  go  behind  the  reports  and  de- 
termine whether  they  were  true,  whether  dividends  were  honestly  paid 
out  of  earnings  or  dishonestly  out  of  capital  stock  or  loans,  whether  cor- 
poration contracts  were  fair  and  secured  an  adequate  return  for  the 
money  laid  out,  or  whether  they  were  collusively  made  for  the  enrichment 
of  individual  members  of  the  corporation  who  were  interested  on  the  side 
of  the  contractors. 

If  investigation  should  reveal  abuses  of  such  a  nature,  the  law  should 
provide  for  an  impartial  receivership  until  the  conscientious  manage- 
ment of  the  corporation  in  the  interest  of  the  stockholders  could  be  se- 
cured. 'Moreover,  heavy  penalties  by  fine  or  imprisonment  or  both 
should  be  imposed.  In  addition.  Congress  could  make  any  other  condi- 
tions necessary  to  secure  honest  promotion  and  management  of  the  cor- 
poration receiving  a  Federal  charter.  My  colleague  will  indicate  how 
Congress  under  a  national  incorporation  law  can  check  the  abuses  of 
overcapitalization  and  interholding  of  stocks. 

Nothing  less  than  a  law  providing  for  national  incorporation  under 

13 


Debate:    Fedkrai,  Incorporation 

proper  conditions  will  solve  the  corporation  problem.  The  states  will 
not  pass  such  a  law,  but  public  opinion  of  the  country,  which  unquestion- 
ably favors  effective  regulation  of  corporations,  if  focused  upon  one 
national  law-making  body — Congress — will  compel  these  reforms  if  the 
principle  of  national  incorporation  be  accepted.  We  submit,  therefore, 
that  the  question  of  national  incorporation  be  answered  emphatically  in 
the  affirmative. 


SECOND  NEGATIVE,  MR.  WETTRICK,  MICHIGAN. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  gentlemen  of  the  affirmative  have  told  you  that  as  long  as  two 
or  three  states  are  allowed  to  create  corporations  that  can  do  business  in 
all  the  states  under  their  lax  laws,  we  cannot  expect  to  change  present 
conditions.  But  Congress  can  prohibit  any  corporation  from  doing  an 
interstate  business,  if  it  wants  to.  If  the  corporations  of  New  Jersey, 
for  instance,  are  created  under  lax  laws,  why  does  not  Congress  shut  them 
up  in  that  state?  If  Congress  should  say  to  all  the  states,  unless  your 
corporation  laws  reach  a  certain  standard  we  will  not  let  your  corpora- 
tions engage  in  interstate  business,  the  loose  states  would  have  to  tighten 
up  or  the  corporations  would  no  longer  go  there.  If  they  did,  they  could 
not  engage  in  interstate  commerce  and  only  the  state  which  created  them 
would  be  injured. 

They  have  dwelt  at  length  upon  the  evil  of  overcapitalization.  Now, 
we  want  them  to  tell  us  just  what  connection  there  is  between  overcapi- 
talization and  interstate  commerce.  And  if  they  do  show  us  a  connection 
between  them,  then  we  want  them  to  tell  us  what  they  will  take  as  the 
basis  of  capitalization ;  will  it  be  the  net  earnings  or  the  gross  earnings ; 
the  original  cost  or  the  cost  of  reproduction?  And  if  they  find  a  satis- 
factory basis  of  capitalization,  then  we  want  them  to  show  us  how  a 
Federal  charter  will  remedy  the  evil  any  more  than  general  statutes  with- 
out federal  incorporation. 

They  call  your  attention  to  Arizona  as  an  example  of  the  worst  kind 
of  incorporation  laws.  We  remind'  them  that  Arizona  is  a  territory,  and 
that  its  corporations  are  either  created  by  Congress,,  or  by  the  legislature 
of  Arizona  by  the  consent  of  Congress.  Congress  may  control  the  legis- 
lation of  the  territories.  What  they  have  given,  then,  as  an  example  of 
the  worst  kind  of  incorporation  law,  is  really  a  federal  incorporation  law. 

We  have  shown  you  that  a  federal  incorporation  law  is  radical,  revo- 
lutionary and  overcentralizing.  We  wish  to  show  further  that  it  is  im- 
practical and  unnecessary.  We  are  not  defending  present  conditions,  as 
the  gentlemen  would  have  you  believe.  We  recognize  the  evils  that 
exist  and  are  just  as  anxious  to  remedy  them  as  they  are.     But  we  be- 

14 


debate;:     Fejdkral  Incorporation 

lieve  that  this  can  be  done  by  less  sweeping  measures,  and  without  the 
wrongs  and  injustices  that  would  be  perpetrated  by  compulsory  federal 
incorporation  of  all  corporations,  great  and  small,  good  and  bad. 

We  are  not  opposed  to  federal  regulation  of  interstate  commerce,  as 
they  would  imply,  but  we  are  opposed  to  federal  incorporation.  The 
fundamental  principle  of  this  Union  is  that  there  should  be  a  division  of 
power  between  the  states  and  the  Nation.  The  situation  is  this:  here 
is  the  boundary  line  between  two  states ;  whatever  passes  over  that  line 
is  interstate  business  and  is  subject  to  regulation  by  Congress.  What- 
ever is  done  on  either  side  of  that  line  is  state  business,  and  is  subject  to 
regulation  by  the  states,  because  it  is  their  inherent  right  to  regulate  pure- 
ly local  and  domestic  affairs.  The  basis  of  the  jurisdiction  is  the  business 
done,  not  the  character  of  those  who  do  it.  They  would  have  this 
changed  so  as  to  make  the  corporations,  instead  of  the  business,  the  basis. 
To  do  so  would  bring  under  federal  jurisdiction  not  only  that  part  of  the 
business  done  by  corporations  which  is  interstate,  but  also  that  which  is 
intra-state.  This  would  leave  under  the  control  of  the  states  only  the  ten 
per  cent  of  the  business  of  the  country  not  done  by  the  corporations. 
Does  this  look  like  a  reasonable  and  practical  measure?  We  ask  the 
gentlemen  how  they  can  justify  a  measure  which  practically  abolishes  our 
dual  system  of  control  over  commerce.  They  must  at  least  show  that 
there  are  definite  evils  springing  from  incorporation  which  the  states  and 
the  nation  working  in  harmony  cannot  remedy,  and  which  a  federal  char- 
ter will  remedy,  before  we  are  ready  to  tear  the  corporations  away  from 
the  states. 

But  federal  incorporation  would  be  worthless  unless  Congress  should 
pass  wise  laws  and  make  wise  provisions  for  their  enforcement.  The 
gentlemen  assume  that  this  will  be  done.  What  assurance  have  we  ?  We 
do  not  wish  to  impeach  Congress.  But  it  is  well  known  that  that  body 
is  controlled  by  corporate  influence.  The  Senate  is  practically  dominated 
by  a  few  men  who  represent  the  corporate  interests.  If  this  measure  is 
adopted,  everything  will  be  taken  out  of  the  hands  of  the  states ;  then  if 
Congress  remains  inactive,  or  passes  bad  corporation  laws,  we  will  be 
worse  off  than  before.  It  took  sixteen  years  to  make  the  Anti-Trust 
laws  reasonably  effective,  and  during  all  that  time  the  states  were  helpless, 
because  Congress  by  exercising  its  power  had  precluded  action  by  the 
states.  Now,  if  Congress  compels  all  corporations  to  take  out  a  federal 
charter,  the  states  will  no  longer  have  a  right  to  regulate  them,  and  then 
if  Congress  does  nothing,  the  corporations  will  have  no  master.  We  be- 
lieve that  it  is  better  for  us  to  continue  under  a  system  of  dual  control 
than  to  give  Congress  exclusive  power  and  to  take  chances  on  its  action. 

Let  us  assume,  however,  with  the  gentlemen,  that  Congress  would  pass 

15 


Debate:     Federal  Incorporation 

wise  laws.  Then  we  hold  that  this  measure  would  be  impractical,  firsts 
because  it  would  be  physically  impossible  to  do  the  business.  The  magni- 
tude of  the  task  dooms  it  to  failure.  Think  what  it  would  mean  to  incor- 
porate and  regulate  the  thousands  of  corporations!  The  railroad  business 
alone  has  swamped  the  Interstate  Commerce  Commission.  Cases  that 
involve  decisions  under  the  Interstate  Commerce  Act  now  have  priority 
and  yet  the  courts  cannot  take  care  of  them.  Suppose  all  cases  arising 
in  connection  with  interstate  corporations  were  thrown  upon  the  federal 
courts.  They  would  be  utterly  incapable  of  handling  the  business  even 
though  they  were  increased  ten  fold  and  took  two  decades  to  decide,  in- 
stead of  one  as  they  now  require.  New  York  state  alone  has  been 
compelled  to  appoint  two  commissions  to  take  care  of  work  practically 
all  of  which  would  be  brought  under  federal  control  by  the  adoption  of 
this  measure.  If  the  federal  cannot  now  do  even  a  small  part  of  the  work, 
how  can  it  do  all,  and  how  can  it  take  care  of  the  business  as  the  country 
grows  and  develops? 

This  measure  would  be  impractical  in  the  second  place,  because  it 
would  be  ineffective.  We  are  told  that  if  the  charters  are  granted  at 
Washington  the  corporate  evils  will  be  prevented.  Let  us  consider  that 
proposition.  They  declare,  first,  that  overcapitalization  will  be  prevented. 
Have  they  forgotten  the  Pacific  Railroads,  chartered  by  Congress  and 
under  its  exclusive  regulating  power  ?  They  were  the  worst  overcapital- 
ized roads  in  the  country.  They  tell  us  that  the  promoter  of  speculative 
undertakings  is  to  be  driven  from  the  field.  But  the  financial  evils  of 
promotion  and  speculation  are  due  quite  as  much  to  the  greed  and  selfish- 
ness of  the  investor,  as  to  the  promoter.  Can  any  artificial  law  eliminate 
the  gambling  spirit  from  these  men?  We  are  told  that  rebates  and  dis- 
criminations exist.  True,  but  can  the  granting  of  a  federal  charter  com- 
pel a  company  to  produce  a  contract  in  evidence  that  has  never  been 
written?  These  contracts  are  in  secret.  How  will  a  charter  enable  the 
government  to  get  at  those  secrets  any  more  than  it  can  today  ?  Is  it  any 
easier  to  enforce  the  law  under  a  federal  charter,  as  the  gentlemen  assume, 
than  it  is  under  a  general  statute  prohibiting  these  evils?  If  not,  then  the 
proposed  law  would  be  mere  surplusage  upon  the  statute  books,  and  there- 
fore, ineffective. 

We  are  opposed  to  this  measure  for  another  reason.  We  believe  that 
it  is  unnecessary  because  there  is  a  more  simple  and  effective  method. 
This  country  is  upon  the  threshold  of  great  commercial  and  industrial 
development,  and  we  are  evolving  a  system  of  legal  control  that  will  be 
elastic  and  effective.  The  work  is  being  accomplished  by  the  slow  but  in- 
evitable forces  of  local  agitation  which  is  educating  both  the  legislator 
and  the  people  whom  he  represents.     One  can  hardly  take  up  a  news- 

16 


Dkbatk:     Federal  Incorporation 

paper  without  noting  that  the  efforts  of  the  states  are  attended  with  con- 
spicuous success.  We  deny  the  assertion,  therefore,  that  there  is  such 
negligence  on  the  part  of  the  states  that  there  is  a  fair  basis  for  stripping 
them  of  practically  all  power,  and  that  federal  incorporation  furnishes 
the  only  solution. 

There  is  another  objection  to  this  measure.  It  would  shift  the  cen- 
ter of  moral  obligation  upon  which  the  solution  of  this  problem  must 
ultimately  rest,  from  the  local  conscience  to  Washington. 

It  would  destroy  the  primary  forces  and  processes  by  which  all  our 
reforms  are  obtained,  for  it  is  impossible  to  turn  our  local  questions  into 
federal  questions  and  yet  retain  the  vigor  and  efficiency  of  locaLiotergst. 
Only  the  more  exacting  and  slower  work  of  reaching  the  public  con- 
science and  educating  the  people  can  ever  form  a  true  basis  for  the  solu- 
tion of  this  problem.  And  it  is  this  process  of  fundamental  education — 
without  which  federal  enactments  themselves  are  impotent — that  this 
measure,  so  questionable  in  its  principles  and  so  uncertain  in  its  effects, 
would  at  this  time  weaken  and  destroy. 

The  gentlemen  would  centralize  everything  in  the  federal  govern- 
ment. We  plead  for  some  system  of  dual  control,  under  which  Congress 
has  the  exclusive  right  to  regulate  the  corporations  insofar  as  they  engage 
in  interstate  commerce,  and  the  states  to  regillate  what  is  purely  local  and 
domestic. 

We  repeat  that  it  is  not  necessary  to  strip  the  states  of  all  power  in 
order  to  regulate  interstate  commerce  and  the  corporations.  This  coun- 
try is  in  a  state  of  economic  and  industrial  development,  and  we  cannot 
afford,  by  mechanical  means,  to  stampede  evolution  into  revolution.  Re- 
form measures,  supported  by  economic  forces  and  a  wholesome  local  senti- 
ment, are  tending  toward  an  adequate  solution.  Let  the  federal  commis- 
sion co-operate  with  the  state  commissions,  so  that  the  work  of  the  one 
will  be  reinforced  and  supplemented  by  the  work  of  others  who  under- 
stand the  local  needs,  and  we  shall  have  gone  a  long  way  toward  a  solu- 
tion of  the  problem.  Let  Congress  shake  off  its  allegiance  to  the  trusts, 
exercise  its  power,  and  by  good  legislation  eliminate  the  inequalities  in 
state  requirements,  thus  bringing  about  the  necessary  uniformity  without 
uprooting  well-fixed  and  stable  institutions,  and  we  shall  have  solved  the 
problem  in  the  only  rational  way. 

We  believe  with  Justice  Harlan,  "that  a  National  government  for 
national  affairs,  and  a  State  government  for  state  affairs,  is  the  founda- 
tion rock  upon  which  our  institutions  rest."  And  that  "any  serious  de- 
parture from  that  principle  would  bring  disaster  upon  the  American  peo- 
ple and  upon  the  American  system  of  free  government." 

\7 


debate;:     F^dkrai,  Incorporation 

THIRD  AFFIRMATIVE,  MR.  SANDERSON,  CHICAGO. 

Mr.  President,  Honorable  Judges,  Ladies  and  Gentlemen — 

This  measure  will  not  take  from  the  states  the  control  of  their  local 
affairs  as  has  been  contended  by  the  negative.  If  a  corporation  were 
chartered  by  the  Federal  government,  a  state  could  make  it  take  out  a 
state  license,  on  any  reasonable  terms  it  wished  to  prescribe,  before  it 
could  have  the  privilege  of  doing  intra-state  business.  The  corporation 
1  would  then  have  to  conform  to  all  the  terms  of  the  license  in  the  trans- 
action of  local  business  or  virtually  be  excluded  from  the  state.  It  is 
perfectly  immaterial  to  Illinois  so  far  as  its  control  of  the  intra-state  busi- 
ness of  the  corporation  is  concerned,  whether  the  corporation  is  chartered 
by  New  Jersey  or  the  Federal  government. 

Such  a  measure  would  leave  with  the  states  also  all  their  just  and 
equitable  taxing  powers.  Under  a  national  incorporation  law  the  state 
could  still  tax  all  the  tangible  property  of  the  corporations  located  within 
its  borders,  in  exactly  the  same  way  that  it  now  taxes  the  tangible  prop- 
erty of  the  national  banks.  Furthermore,  in  the  state  license  already 
referred  to  the  state  could  put  terms  that  would  compel  a  corporation  to 
pay  any  reasonable  annual  tax  it  might  wish  the  privilege  of  doing 
business  in  that  state. 

One  of  the  objections  the  negative  has  made  to  federal  incorporation 
is  that  it  would  be  physically  impossible  to  carry  out  such  a  measure. 
This  is  not  a  valid  objection.  Incorporation  under  the  Federal  govern- 
ment would  be  a  simple  matter.  All  that  would  be  necessary  would  be 
for  the  corporations  to  get  their  charters  from  the  Nation  instead  of 
from  the  states.  It  would  be  merely  a  transfer  of  the  authority  to  grant 
charters  from  the  state  to  the  nation. 

As  far  as  litigation  is  concerned,  a  national  incorporation  law  would 
decrease  the  number  of  suits.  At  present  each  state  has  a  different  cor- 
poration law  and  a  separate  line  of  judicial  decisions.  This  results  in  an 
endless  conflict  pf  corporation  law  involving  a  great  amount  of  litigation. 
But  under  a  uniform  corporation  law  and  a  uniform  line  of  judicial  deci- 
sions our  corporation  law  would  be  simplified,  and  litigation  now  caused 
by  non-uniformity  in  our  laws  would  be  avoided.  It  is  true,  litigation  in 
federal  courts  would  be  increased,  but  the  sum  total  of  litigation,  in  both 
federal  and  state  courts,  would  be  much  less  than  at  present. 

The  gentleman  referred  to  the  Pacific  Railroad  as  an  example  of 
federal  incorporation.  I  merely  want  to  call  your  attention  to  the  fact 
that  the  Pacific  Railroad  was  chartered  more  than  forty  years  ago,  when 
there  was  no  demand  for  government  regulation  or  supervision  of  cor- 
porations, and  that  this  corporation,  therefore,  is  not  a  criterion  of  what 
the  federal  government  would  do  now  in  chartering  corporations. 


De:bate::     Fede:rx\l  Incorporation 

My  first  colleague  has  shown  that  there  are  pronounced  evils  in  our 
present  system  of  corporate  organization;  and  that  these  evils  are  inhe- 
rent in  state  incorporation.  My  second  colleague  has  shown  that  na- 
tional incorporation  would  be  the  only  effective  remedy  for  these  evils, 
for  it  is  the  only  remedy  that  gives  to  Congress  control  of  the  charter,  the 
all-important  thing  in  regulating  corporations.  He  has  shown  also  how 
Congress,  by  controlling  the  charter,  could  deal  effectively  with  the  evils 
of  dishonest  promotion  and  management,  the  very  heart  of  our  corpora- 
tion problem,  from  which  spring  practically  all  other  corporation  evils; 
for  if  we  could  enforce  honest  promotion  and  honest  management  into 
the  corporations,  the  public  would  have  little  to  fear. 

I  shall  explain  the  effectiveness  of  this  measure  a  little  further,  by 
showing  how  it  would  reduce  to  a  minimum  the  evils  growing  out  of 
interholding  and  overcapitalization.  First  as  to  interholding.  As  most 
states  do  not  now  permit  interholding.  Congress  might  prohibit  it  out- 
right by  forbidding  the  corporations  to  hold  or  allow  their  stock  to  be 
held,  in  any  other  corporation,  thus  restoring  the  control  of  the  corpora- 
tions to  their  stockholders.  But  if  it  be  considered  inadvisable  to  abolish 
it  altogether,  Congress  might  permit  it  but  refuse  the  stock  the  right  to 
vote.  If  it  be  said  that  this  would  deprive  the  stock  of  a  part  of  its  value, 
it  can  be  answered  that  if  this  value  consists  in  controlling  with  but  a  small 
investment  other  corfK>rations  to  the  detriment  of  these  corporations  and 
against  the  consent  of  their  stockholders,  then  such  value  should  be  taken 
away.  If  investment  without  the  voting  power  be  considered  unsafe,  a 
reasonable  time  might  be  allowed  for  the  transfer  of  this  stock  for  other 
forms  of  securities. 

Finally,  as  to  overcapitalization  or  watered  stock.  What  are  the 
causes  of  watered  stock?  In  the  first  place  it  must  be  conceded  that  dis- 
honesty in  promotion  and  management  give  rise  to  watered  stock  of  all 
kinds,  and  that  any  measure  that  would  check  dishonesty  in  promotion 
and  management — and  my  colleague  has  shown  that  Congress  by  control- 
ling  the  charter  could  check  it — would  go  far  to  reduce  the  evils  of  over- 
capitalization. 

In  the  second  place  the  evils  of  watered  stock  are  due  to  secrecy. 
At  present  promoters  are  allowed  to  work  in  the  dark  in  fixing  capitali- 
zation, being  limited  only  to  the  amount  of  stock  they  can  advantageously 
sell ;  for  in  most  states  they  are  required  to  make  no  reports  whatsoever 
showing  the  items  on  which  the  capitalization  of  a  corporation  is  based, 
being  permitted  to  fix  it  in  any  way  and  on  anything  they  may  elect.  No 
wonder  the  investing  public  who  have  no  means  of  getting  accurate  infor- 
mation are  easily  deceived.  But  if  Congress  had  control  of  the  charters 
it  might  deal  with  overcapitalization  by  provisions  similar  to  those  now 

19 


Debate:     Federal  Incorporation 

in  force  in  two  or  three  of  our  best  state  laws,  which  are  in  substance 
these : 

All  incorporators  on  applying  for  a  charter  are  required  to  make 
public  sworn  statements  concerning  the  exact  nature  and  value  of  each 
item,  describing  it  in  detail,  upon  which  capitalization  is  based;  and  to 
make  public  also  full  information  concerning  all  matters  that  would  in- 
fluence the  purchase  of  stock.  And  if  fraud  is  found  in  any  of  these 
statements,  heavy  penalties  might  be  imposed,  the  same  as  are  now  im- 
posed in  case  of  fraud  in  our  national  banking  system. 

The  effect  of  such  legislation  would  be  far-reaching.  The  fact  that 
promoters,  in  place  of  fixing  capitalization  in  an  arbitrary  way  without 
reference  to  assets,  would  be  compelled  to  subscribe  their  names  under 
oath  to  a  detailed  statement  showing  the  exact  basis  of  their  estimates,  to 
be  filed  for  public  record,  would  have  a  powerful  influence  in  restraining 
the  issue  of  watered  stock,  and  preventing  capricious  and  reckless  action. 

Having  shown  the  effectiveness  of  this  measure  we  shall  now  indi- 
cate how  national  incorporation  would  be  a  wise  extension  of  federal 
activity.  First,  because  it  would  place  the  chartering  power  in  the  hands 
of  Congress  where  it  logically  and  naturally  belongs.  For  instance,  the 
United  States  Steel  Corporation  now  does  business  in  every  state  in  the 
entire  country  and  its  products  penetrate  the  markets  of  the  world.  Yet 
it  is  chartered  by  a  single  state.  Our  large  railway  systems  now  form 
great  belts  across  our  continent  doing  business  from  ocean  to  ocean.  And 
*still  they  are  chartered  by  single  states.  Inasmuch  as  those  corporations 
|ffect  the  entire  nation,  what  right  has  any  one  state  to  charter  them  and 
io  extend  to  them  business  privileges?  Furthermore,  certain  states  by 
l)ffering  lax  corporation  laws  for  the  purpose  of  getting  the  incorporation 
tees  and  franchise  taxes,  have  attracted  vast  numbers  of  corporations 
from  all  parts  of  the  country  to  get  their  charters  from  them,  irrespective 
of  where  these  corporations  do  their   principal  business. 

For  example,  according  to  Moody's  table  on  corporations,  New  Jer- 
sey, on  account  of  its  lax  laws,  now  charters  two-thirds  of  all  the  im- 
portant industrial  corporations  of  the  entire  country,  which  control,  ex- 
clusive of  railway  property,  about  two-thirds  of  our  entire  wealth  con- 
nected with  interstate  corporations — although  the  great  bulk  of  these 
corporations  do  little  or  no  business  within  the  state  of  New  Jersey. 
Now,  what  right  has  little  New  Jersey,  with  only  two  per  cent  of  our 
population,  to  charter  and  extend  business  privileges  to  two-thirds  of  all 
important  industrial  corporations  of  the  entire  country,  especially  when 
most  of  these  corporations  do  practically  no  business  within  the  state 
of  origin?  What  right  has  little  New  Jersey,  with  only  1.3%  of  our 
nation's  wealth,  to  collect  handsome  franchise  taxes  on  this  vast  propor- 

20 


D^ATE:    FederaIv  Incorporation 

tion  of  our  nation's  wealth,  especially  when  most  of  this  wealth  is  con- 
nected with  corporations  that  do  their  business  entirely  in  other  states? 
We  hold  that  these  are  rights  which  should  be  centralized,  not  in  2%  of 
the  people,  but  in  all  of  the  people  through  Congress. 

In  the  second  place  this  measure  would  be  a  wise  extension  of  fed- 1 
eral  activity  because  it  would  do  away  with  the  bidding  of  the  states  | 
against  each  other  for  the  incorporation  fees  and  franchise  taxes,  th^f 
greatest  inducement  for  lax  corporation  laws.     Our  opponents  say  that 
these  taxes  should  by  all  means  be  left  with  the  states.     But  we  hold 
that,  not  only  should  the  states  have  no  right  to  such  taxes  on  our  great 
interstate  corporations,  but  that  this  source  of  revenue  is  one  of  the  fun-  \ 
damental  causes  of  our  loose  corporatidn  taws.     It  is  for  this  revenue  \ 
that  the  states  bid  against  each  other  for  business — the  state  offering  to    \ 
an  unscrupulous  promoter  of  a  corporation  the  greatest  opportunities  for    | 
stock  manipulation  and  dishonest  management,  is  the  one  that  gets  the     | 
job  of  granting  the  charter,  which  brings  to  the  chartering  state  these 
special  privileges  of  taxation.     Some  states  have  even  gone  so  far  in  their 
greed  for  this  revenue  as  to  offer  a  corporation  almost  any  kind  of  a  ^^ 
charter  it  wants,  providing  it  will  agree  to  do  its  business  entirely  in  other  ^"^" 
states.     For  instance,  some  time  ago  Pennsylvania  chariered  the  New 
York  and  California  Vineyard  Company,  authorizing  it  to  do  business 
everywhere  in  the  United  States,  except  in  Pennsylvania,  upon  condition 
that  it  pay  to  Pennsylvania  large  incorporation  fees.     In  1902  New  York 
proposed  a  bill  to  sell  telephone  and  telegraph  charters  which  should  be 
free  from  restrictions  ordinarily  thrown  about  such  companies  by  the 
New  York  law,  if  they  would  agree  to  do  business  entirely  outside  the 
state.     Just  recently  Connecticut  chartered  a  large  banking  corporation 
authorizing  it  to  do  almost  any  kind  of  business  in  almost  any  way  it 
pleased,  in  every  state  in  the  Union  except  Connecticut.     The  only  con- 
dition was  that  it  pay  to  Connecticut  a  handsome  annual  franchise  tax. 

Now,  here  are  corporations  so  bad  that  those  states  would  not  allow  I 
them  to  do  business  within  their  own  borders,  yet  they  chartered  them  l 
and  sent  them  out  to  perpetrate  their  evils  broadcast  throughout  the 
country,  for  the  sole  and  selfish  purpose  of  getting  these  taxes.  And, 
therefore,  the  sooner  this  method  of  raising  revenue  is  taken  from  the 
states  the  better.  Yet  the  gentlemen  from  Michigan  say  that  these  taxes 
should  be  left  with  the  states ;  they  need  them.  Ladies  and  Gentlemen, 
do  you  suppose  that  the  framers  of  the  Constitution,  when  they  gave  to 
Congress  power  over  interstate  commerce,  ever  intended  that  it  should 
stand  idly  by  and  allow  this  sort  of  practice  to  continue?  Certainly  not. 
We,  therefore,  hold  that  the    time  has  come  when  it  should  step  in  and 

21 


D^BAT^:    FederaIv  Incorporation 

put  a  stop  to  such  a  disgraceful  policy,  by  compelling  all  corporations 
(engaged  in  interstate  commerce  to  take  out  charters  from  the  federal 
government. 

In  conclusion  let  me  state  the  vital  issue  of  this  entire  debate.    Are 
our  interstate  corporations  to  be  longer  chartered  in  the  way  we  have 
shown,  or  are  they  to  be  chartered  by  the  federal  government  ?    Accord- 
ing to  Moody's  Manual  on  Corporations,  New  Jersey,  West  Virginia, 
.  and  Delaware,  on  account  of  their  lax  laws,  now  charter  three-fourths  of 
I  all  important  industrial  corporations  of  the  entire  country.     Commission- 
er Garfield  of  the  Bureau  of  Corporations  says,  the  corporation  laws  of 
I  these  three  states  are  so  lax  as  to  be  vicious  in  their  workings.     We, 
I  therefore,  come  face  to  face  with  this  proposition:     Are  our  interstate 
I  corporations  to  be  chartered  for  the  most  part  by  the  states  offering  the 
I  laxest  laws,  or  are  they  to  be  chartered  according  to  a  uniform  law  of 
I  the  federal  government,  which  will  contain  the  best  provisions  of  our 
^, state  laws,  with  additional  federal  features?     Public  sentiment  unques- 
tionably favors  effective  regulation  of  corporations.     Center  it  in  Con- 
gress and  you  will  get  an  adequate  and  effective  law. 


THIRD  NEGATIVE,  MR.  EVES,  MICHIGAN. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  affirmative  have  spent  two-and-a-half  speeches  telling  us  of  the 
present  corporate  evils ;  we  admit  them  and  remind  you  that  we  are  not 
here  to  defend  present  conditions.  And  then  they  spent  half  a  speech 
arguing  for  Federal  Incorporation.  But  they  did  not  tell  us  why  we  must 
have  federal  incorporation  or  how  it  would  remedy  the  evils  any 
more  effectively  than  they  might  be  remedied  by  National  statutes. 

We  pointed  out  to  the  gentlemen  that  a  charter  system  would  rob 
the  state  of  its. revenue;  they  answered  that  this  was  what  they  want  to  do, 
take  away  the  revenue  that  comes  from  state  incorporation  and  thus  stop 
the  states  from  bidding  for  corporate  business  and  then  in  the  next 
breath  he  says  that  we  will  have  Congress  let  the  states  still  tax  the 
corporations.  Now  what  does  he  intend  to  do?  If  he  means  the  latter 
we  might  remind  him  that  the  case  of  McCullouch  vs.  Maryland  held,  that 
a  state  could  not  tax  a  federal  agent  or  franchise.  This  case  has  never 
been  overruled  and  therefore  it  follows  that  a  state  would  be  robbed  of 
its  revenue  by  their  measure. 

Again,  they  talk  of  overcapitalization,  but  they  have  not  shown  that 
a  federal  charter  would  remedy  it.  He  says  that  it  forces  the  poor  shop 
girls  of  New  York  to  pay  an  unjust  trolley  fare;  we  remind  him  that 
overcapitalization  has  nothing  to  do  with  the  price  of  street  car  rides, 
because  that  is  fixed  by  the  law  of  monopoly.     Street  car  companies 

22 


D^BATie:    FedKrai,  Incorporation 

charge  as  much  as  the  traffic  will  bear  regardless  of  the  capitalization. 
He  says  that  overcapitalization  makes  us  pay  an  exorbitant  *  price  for 
sugar.  That  is  a  monopoly  price  fixed  so  as  to  bring  in  the  greatest  re- 
turn. Therefore,  in  these  cases  there  is  no  connection  between  overcapi- 
talization and  interstate  commerce. 

They  talk  of  interholding  of  shares,  but  in  the  late  report  of  the  In- 
dustrial Commission  of  1906  it  says,  at  the  present  time  the  federal  gov- 
ernment has  sufficient  power  to  do  away  with  interholding  of  shares; 
therefore,  there  is  no  need  for  federal  incorporation  to  remedy  this  evil. 

The  gentlemen  have  based  their  whole  case  on  the  assumption  that 
a  federal  incorporation  law  if  passed  would  be  a  model  law.  Yet  it  is 
entirely  possible  that  this  might  not  be  the  case.  Have  they  forgotten 
that  a  large  portion  of  the  men  who  would  pass  their  measure  are,  if  not 
the  controlling  factors,  at  least  the  champions  of  these  corporations  ?  Do 
they  forget  Bailey  and  the  Standard  Oil,  Piatt  and  the  Express  Com- 
panies, Foraker,  Aldrich,  Depew  and  sixty  or  seventy  per  cent  of  the 
rest  of  them,  who  have  similar  corporate  interests  ?  They  talked  of  over- 
capitalization. How  will  a  federal  charter  help  this  abuse?  The  Pa- 
cific Railroads  which  operated  under  a  federal  charter.  Dean  Huifcutt 
declared  to  be  the  worst  overcapitalized  roads  in  the  country.  Why 
didn't  they  tell  you  about  the  incorporation  law  of  the  District  of  Colum- 
bia? That  is  a  law  passed  by  Congress  and  dealing  with  the  same  sub- 
ject called  for  in  this  resolution.  The  only  difference  is  the  one  is  for 
the  District  of  Columbia  and  the  other  is  for  the  Nation.  Here  is  an 
analogous  case.  Why  did  they  not  tell  you  about  it?  For  the  simple 
reason  that  the  incorporation  law  of  the  District  of  Columbia  is  a  poorer 
law  than  was  ever  passed  by  any  state.  On  this  point  Professor  Smalley 
says,  "The  District  of  Columbia  has  became  a  breeding  place  for  corpo- 
rate pests."  And  Connington  in  his  "Corporate  Organization"  declares 
that  no  state  in  the  Union  is  turning  loose  upon  the  investing  public  such 
an  utterly  irresponsible  swarm  of  visionary,  inflated  and  fraudulent  cor-  | 
porations  as  is  the  Di§trict-4>i>Golumbia.  It  is  the  old  story  of  the  small  ^ 
boy  and  the  pie.  If  he  can't  eat  a  little  piece  he  can't  get  a  big  one. 
And  if  Congress  cannot  pass  a  decent  corporation  law  for  the  District 
of  Columbia  it  won't  pass  a  good  one  for  the  Nation.  Yet  the  gentlemen 
argue  that  we  should  have  a  similar  law  for  all  the  states  and  thus  make 
the  whole  nation  a  breeding  place  for  corporate  pests. 

But  for  the  sake  of  argument  grant  that  such  a  law  would  be  all  that 
the  affirmative  have  assumed,  even  then  we  are  opposed  to  it  for  the 
reasons  which  my  colleagues  have  given.  But  we  are  not  here  simply  to 
tear  down,  we  are  as  anxious  for  a  remedy  as  the  affirmative.  We  admit 
with  them  that  there  are  corporate  evils  and  that  these  evils  should  be 

23 


DEBATE:     Fkde:rai,  Incorporation 

remedied.  We  agree  with  them  that  we  need  more  efficient  federal  con- 
trol over  interstate  business.  But  we  are  not  willing  to  take  a  blind  jump 
in  the  dark  and  say  that  every  corporation  must  take  out  a  federal  char- 
ter. We  would  remedy  corporate  evils  as  my  colleague  has  suggested,  by 
means  of  machinery  already  in  existence.     And,  if  necessary,  we  would 

\  strengthen  that  machinery  by  means  of  a  federal  Hcense. 

\         Now  by  a  federal  license  we  mean  this : 

First,  the  state  shall  continue  to  grant  the  charter  and  create  the  cor- 
poration, but  before  the  corporation  thus  created  can  engage  in  interstate 

^  business  it  must  take  its  charter  before  a  federal  commission  where  if  it 

^  is  found  not  too  liberal  a  federal  license  will  be  granted. 

i  By  this  system  is  preserved  that  principle  of  duality  upon  which 

our  whole  system  of  government  is  built.  The  state  is  sovereign  in  its 
field  and  exercises  that  sovereignty  by  creating  the  corporation.  The  na- 
tional government  is  sovereign  in  its  field  and  exercises  that  sovereignty 
by  requiring  the  agents  engaged  in  that  field  to  take  out  a  federal  license. 
Here  we  have  the  corporation  operating  in  two  distinct  and  separate  fields 
with  a  sovereign  power  in  each.  The  gentlemen  say  that  this  dual  con- 
trol would  be  ineffective  and  give  rise  to  conflict.  That  by  it  a  corpora- 
tion could  operate  under  a  charter  permitting  and  a  license  forbidding. 
This  need  not  be  the  case  and  under  the  system  we  advocate  could  not  be. 
Because  if  the  state  charter  permits  anything  that  the  national  license 
prohibits  the  license  will  not  be  granted.  In  a  word  the  provisions  of 
the  state  charter  must  fall  within  the  prescribed  prohibitions  of  the  fed- 
eral license  before  that  license  will  be  granted. 

Thus  there  can  be  no  conflict  between  these  two  sovereigns. 
They  tell  you  that  the  loose  states  will  never  tighten  up  but  this 
provision  would  at  least  have  a  w^holesome  eflfect  upon  them  because  no 
corporation  will  accept  from  any  state  a  charter  so  liberal  as  to  prevent 
it  from  getting  a  federal  license.  It  will  tend  to  tighten  up  the  loose 
sitates  and  to  bring  about  uniformity  along  the  general  lines  in  which  we 
want  uniformity,  and  at  the  same  time  permits  elasticity  in  detail  which 
cannot  be  secured  under  a  federal  charter  such  as  the  gentlemen  advo- 
cate. They  say  that  federal  control  can  only  be  secured  by  federal  char- 
ter because  it  alone  strikes  at  the  life  of  the  corporation.  Now  let  us  see 
J  about  that.  In  the  second  place,  under  the  license  system,  if  at  any  time 
the  corporation  abuses  its  privilege  or  works  harm  to  society  the  federal 
government  may  fine  the  corporation,  imprison  its  officers  or  revoke  the 
license  and  thus  deprive  the  corporation  of  its  right  to  engage  in  inter- 
state business.  By  this  power  to  punish  the  corporation,  the  government 
has  absolute  and  efficient  control  over  the  agents  of  interstate  commerce. 
It  can  demand  of  the  corporation  reports,  statistics,  publicity  or  whatever 

24 


DjSbat^  :    Fede:rai.  Incorporation 

else  it  deems  necessary  for  the  welfare  of  society.  Here,  gentlemen, 
we  have  as  efficient  control  over  interstate  commerce  as  a  federal 
corporation  law  could  possibly  igive.  But  mark  you,  the  sovereignty  of 
the  state  is  not  impaired  because  the  state  still  creates  the  corporation. 
The  federal  government  simply  regulates  the  corporation  when  it  oper- 
ates in  the  field  of  interstate  commerce  and  it  does  this  by  means  of  a 
constitutional  right  that  the  national  government  has  always  possessed. 
By  a  federal  license  is  thus  secured  what  all  agree  is  necessary — national 
control  over  business  national  in  its  deaHng.  And  it  is  secured  without 
the  attending  evils  that  necessarily  come  from  federal  incorporation. 

In  the  third  place,  we  would  have  this  license  compulsory  only  upon 
corporations  doing  an  interstate  business  above  a  certain  amount,  such  as  I 
Congress  may  deem  wise  to  fix.  By  this  provision  we  would  not  work  \ 
injustice  to  the  small  corporations  that  do  99%  of  their  business  within 
the  state  that  creates  them.  We  would  not  force  them  to  go  to  the  ex- 
pense of  taking  out  a  national  charter,  of  filing  national  reports,  and  if 
they  have  a  case  at  law  to  go  to  the  enormous  expense  of  fighting  it 
through  to  the  Supreme  Court  of  the  United  States.  In  short,  we  would 
not  subject  the  small  honest  corporations  to  the  same  rules  and  regula- 
tions that  we  would  the  United  States  Steel  or  the  Standard  Oil  Com- 
pany. 

By  exempting  these  small  corporations  the  federal  government  would 
not  be  swamped  by  the  control  of  all  corporations  as  this  measure  de- 
mands. For  instance,  a  corporation  has  its  place  of  business  within  ten  I 
miles  of  a  state  boundary  line.  Obviously  it  will  do  business  in  both 
states.  But  it  need  not,  necessarily,  be  national  in  its  dealings  or  its  • 
effect.  The  whole  scope  of  its  influence  may  be  within  a  radius  of  fifty 
miles.  Now,  we  claim  it  is  folly  to  burden  the  national  government  with 
such  corporations.  The  plan  which  the  affirmative  advocate  does  this 
but  the  license  system  does  not  burden  the  central  government  with  such 
concerns.  It  leaves  local  business  to  local  control  where  it  rightly  be- 
longs and  thus  saves  the  energy  of  the  national  government  for  national 
evils  committed  by  the  large  corporations,  national  in  their  dealings. 

In  this  debate  the  negative  has  shown :  that  federal  incorporation  is 
radical,  revolutionary  and  overcentralizing.  That  it  robs  the  state  of  a 
sovereign  right  and  deprives  it  of  an  important  source  of  its  revenue.  It 
brings  about  political  and  industrial  centralization  and  destroys  the  bal- 
ance of  power  between  the  state  and  the  nation.  It  works  injustice  to  the 
small  corporation  and  swamps  the  government  with  the  control  of  local 
matters.  We  have  shown  further  that  corporate  evils  are  of  recent  origin 
and  are  tending  to  be  solved  by  economic  forces ;  that  federal  incorpora- 

25 


D^BAT^:    Federal  Incorporation 

tion  is  unnecessary  because  the  present  machinery  in  force,  strengthened 
if  necessary  by  a  federal  license  system,  is  amply  sufficient  to  meet  pres- 
ent needs.  Therefore,  because  corporate  evils  can  be  solved  by  less  dras- 
tic and  more  practical  measures  we  plead  for  the  defeat  of  the  resolution. 


26 


The    Rebuttal 


First  Negative,  Mr.  Burroughs,  Michigan. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

Now,  we  have  repeatedly  asked  the  gentlemen  to  show  us  the  con- 
nection between  the  present  evils  and  the  method  by  which  they  propose  to 
cure  them.     We  think  that  an  answer  to  this  question  is  vital.     So  we  ask 
them  again  wherein  the  chartering  by  the  Federal  government  will  remedy 
present  conditions?    We  desire  to  ask  them  further,  how  far  would  the 
national  corporations  be  subject  to  the  State  police  power?    Have  the  . 
gentlemen  forgot  that  the  right  to  charter  a  corporation  is  the  right  to  i 
give  it  life;  the  right  to  legislate  for  it;  the  right  to  control  it;  the  right* 
to  tax  it ;  or  the  right  to  determine  on  what  terms  that  corporation  shall  *' 
do  business?    And  if  such  a  power  is  to  exist  in  the  Federal  Govern-^?' 
ment,  it  can  override  any  State  legislation  or  regulations.     We  ask  them  ^ 
again  how  far  these  corporations  would  be  subject  to  state  taxing  laws? 
Have  they  also  forgotten  that  the  power  to  tax  is  the  power  to  destroy? 
Hence,  if  the  Federal  government  can  charter  a  corporation  in  one  state, 
and  that  state  can  charter  it  for  its  state  business  and  tax  it  there,  then 
you  have  two  independent  and  supreme  sovereignties,  each  with  an  abso- 
lute and  unlimited  destroying  power,  operating  on  the  same  corporation. 
Will  the  gentlemen  explain  the  working  of  those  results  ?    Again,  we  ask^ 
our  opponents  how  far  would  the  state  retain  absolute  power  to  restrict 
the  operation  and  conduct  of  a  nationally  chartered  interstate  corporation 
within  its  borders?     Is  any  interstate  corporation  to  become  a  State-im- 
muned  pest,  or  an  uncontrollable  and  ungovernable  monster  amenable 
only  to  the  Federal  authority?     We  can  give  many  immunity  baths,  but 
we  cannot  allow  them  for  such  purposes. 

The  gentlemen  have  said  that  federal  activity  in  the  form  of  a  fed- 
eral charter  would  not  be  an  extension  of  federal  power.  But  we  remind 
you  that  President  Roosevelt  in  his  message  particularly  advises  that  we 
should  not  have  an  extension  of  federal  power  or  further  federal  author- 
ity; and  we  contend  that  the  right  to  create,  control,  and  legislate  for 
corporations  is  a  vast  extension  of  federal  power  and  authority  over  inter- 
state corporations. 

Our  opponents  ask,  what  right  has  little  New  Jersey  to  create  corpo- 
rations which  do  almost  all  of  their  business  in  other  states?  Now,  we 
have  shown  you  that  neither  New  Jersey — nor  any  other  state — has  the 
right  to  create  a  corporation  to  do  business  in  another  state.  Congress 
by  virtue  of  its  authority  to  regulate  interstate  commerce  has  absolute 

27 


DEBATE:    Fex>Erai<  Incorporation 

power  to  confine  the  operations  of  a  corporation  created  by  New  Jersey 
within  that  state.  New  Jersey's  corporations  cannot  do  business  else- 
where if  Congress  says  no.  If  Congress,  then,  would  only  exercise  its 
existing  powers,  this  evil  would  be  removed,  and  the  gentlemen's  anxiety 
and  solicitude  would  be  relieved. 

The  gentlemen  have  said  that  we  need  further  centralization.  Yes, 
perhaps  further  centralization  in  national  affairs.  But  we  do  not  need 
nor  are  the  people  asking  for  national  centralization  or  Federalism  in 
things  that  are  purely  local. 

The  gentlemen  speak  of  interholding  of  shares.  Professor  Wilgus, 
whom  they  have  quoted  as  being  in  favor  of  federal  incorporation,  has 
said  again  and  again  that  a  legitimate  amount  of  interholding  is  not  only 
desirable  but  necessary  to  the  best  management  and  success  of  corporate 
enterprises.  The  evil  comes  from  its  abuse.  And  when  the  interholding 
of  shares  is  abused,  or  becomes  illegitimate,  there  is  sufficient  power 
under  the  Hepburn  Bill  to  prevent  it.  Hence  this  is  simply  another  case 
of  Congress  failing  to  exercise  an  existing  power. 

The gefttTe'rhish  teiryou  that  there  will  be  but  a  small  decrease  in  state 
revenues.  We  have  shown  you  that  the  decrease  in  many  states  would  be 
large.  They  tell  you  that  the  tangible  property  of  the  corporations  will 
still  be  subject  to  state  taxation.  Now  we  told  you  that  also,  but  told 
you  at  the  same  time  that  the  best  authorities  conceded  such  a  tax  inhe- 
rently bad.  Now  as  to  the  deficiency  in  state  revenues — ^who  will  make 
it  up  ?  Will  it  be  the  corporation  who  can  pay  the  tax  and  scarcely  miss 
it ;  or  will  it  be  the  general  property  owner,  of  whose  yearly  income  the 
tax  would  constitute  an  appreciable  part?  Let  the  latter  answer  as  to 
that. 

For  these  reasons :  because  this  measure  is  radical  and  revolutionary ; 
because  it  would  strike  down  the  laws  of  more  than  one  hundred  years^ 
growth;  because  it  would  unjustly  impair  the  obligation  of  contracts ;  be- 
cause it  would  deprive  the  states  of  revenues  to  which  they  are  justly  and 
inherently  entitled;  and  because  this  measure  is  overcentralizing,  both 
politically  and  industrially,  and  is  fraught  with  dangers  which  would  not 
only  threaten  our  industrial  and  commercial  progress,  but  with  dangers 
which  would  shake  the  very  stability  of  the  American  Government,  we 
ask  that  the  resolution  be  defeated. 


First  Affirmative,  Mr.  Pope,  Chicag^o. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  gentleman  who  has  just  preceded  me  has  spent  a  great  deal  of 
time  in  attempting  to  show  that  under  the  proposed  measure  the  states 
would  be  robbed  of  an  important  source  of  revenue ;  viz.,  the  incorpora- 
tion fees  and  franchise  taxes.     This  is  not  a  serious  objection  to  our 

28 


Debate:     Federal  Incorporation 

measure  for,  as  we  have  already  shown,  the  states  will  still  have  all  their 
equitable  taxing  powers.  The  states  will  be  able  to  tax  all  the  tangible 
property  in  their  borders.  Furthermore,  if  it  be  for  the  welfare  of  the 
states,  Congress  may  delegate  to  them  the  power  to  levy  and  assess  taxes 
upon  the  shares  or  capital  stock  of  the  corporations  having  a  federal  char- 
ter, in  the  same  way  that  national  banks  are  now  taxed  by  the  several 
-tates.  This  can  be  legally  done.  Van  Allen  vs.  Assessors,  3  Wallace 
573,  is  the  first  of  a  long  line  of  decisions  on  this  point.  As  to  the  incor- 
poration fees  we  contend,  as  my  colleague  has  shown  you,  that  the  states 
are  not  entitled  to  them.  These  incorporation  fees  constitute  one  of  the 
main  causes  for  the  states  to  bid  against  each  other  for  the  job  of  grant- 
ing charters.  Loose  laws  are  enacted  to  attract  corporations  so  as  to 
satisfy  the  selfish  interests  of  these  states.  As  to  taxes,  therefore,  our 
plan  will  furnish  a  more  just  and  equitable  system  than  the  present  one. 

Our  opponents  have  said  that  national  incorporation  would  be  ex- 
tremely centralizing.  Such  men  as  President  Roosevelt  and  Mr.  Wilgus 
say  that  there  would  be  no  centralizing.  It  must  be  admitted  that  there 
would  be  no  transfer  of  power  under  the  incorporation  plan,  because  the 
power  to  incorporate  was  vested  in  Congress  by  the  Constitution.  Con- 
gress is  simply  asked  to  exercise  the  power  which  the  framers  of  the 
Constitution  saw  fit  to  give  to  the  National  Government.  But  if  we 
admit  that  the  power  to  grant  charters,  when  exercised  by  Congress,  is 
extreme  centralization,  would  it  not  be  better  for  this  power  to  be  exer- 
cised by  the  National  Government  than  to  permit  it  to  l^e  exercised  by  a 
few  states,  as  is  being  done  under  present  conditions?  Three  states — 
Delaware.  West  Virginia,  and  New  Jersey — now  charter  three-fourths 
of  all  the  important  industrial  corporations  of  this  country.  Now  if  in- 
corporation means  centralization,  should  we  not  have  centralization  In  the 
national  government  which  represents  all  the  people,  rather  than  in  a  few 
states  which  have  laws  that,  according  to  Mr.  Garfield,  Commissioner  of 
Corporations,  are  simply  vicious? 

Our  opponents  have  asked  us  how,  under  the  proposed  measure. 
Congress  can  deal  effectively  with  the  interholding  of  stocks.  We  merely 
repeat  one  provision  of  our  case.  Congress  may  forbid  interholding  out- 
right by  demanding,  as  a  condition  precedent  to  the  granting  of  the  char- 
ter, that  no  corporation  hold  shares  in  or  permit  its  shares  to  be  held  by 
any  other  corporation.  It  may  be  noted  here  that  the  measure  proposed 
by  the  negative  includes  no  provision  for  correcting  this  abuse,  and  any 
remedy  which  ignores  it  must  be  far  from  adequate. 

Now,  let  us  examine  the  remedy  proposed  by  the  negative.  It  is 
obvious  that  our  opponents  have  found  a  scheme  just  as  nearly  like  our 
plan  of  national  incorporation  as  could  be  found  and  yet  have  an  argu- 

29 


DEBATE:     Federal  Incorporation 

able  difference.  What  is  the  difference  between  national  incorporation 
and  the  national  license  plan  which  they  have  submitted?  National  In- 
corporation means  a  control  of  the  charter,  which  governs  the  essential 
elements  of  the  life  of  the  corporation.  As  before  indicated,  it  regulates 
the  organization,  management,  capitalization,  the  methods  of  voting  stock, 
of  declaring  dividends,  of  assigning  shares,  of  inspecting  books,  etc.  To 
be  effective.  Congress,  under  a  national  license,  must  control  these  ele- 
ments of  the  corporation.  It  is  apparent  on  the  very  face  of  it  that 
Congress  is  taking  from  the  states  the  powers  incidental  to  a  charter — 
taking  the  very  things  that  the  states  wish  to  retain,  and  the  identical 
powers  that  our  opponents  have  so  vigorously  contended  during  this  de- 
bate should  be  left  with  the  states.  Moreover,  it  is  clear  that  our  oppo- 
nents are  seeking  to  do  the  very  thing  that  we  propose  to  do.  They  will 
do  it  in  an  indirect  way ;  we  propose  to  do  it  directly  by  controlling  the 
charter  of  the  corporation. 

The  fundamental  difference  between  the  two  systems  is  this:  the 
license  system  will  leave  the  power  of  incorporation  with  the  states 
where  it  now  exists,  with  all  the  possibilities  of  evil  that  flow  from  it. 
The  negative  have  not  shown  that  the  states  will  not  continue  their  bidding 
for  revenues,  which  is  the  root  of  all  corporation  evils.  On  the  other 
hand,  national  incorporation  will  grapple  with  the  very  heart  of  the  cor- 
poration problem  by  controlling  the  corporation's  charter,  out  of  which 
the  evils  arise.  We  leave  you  to  choose  the  system  that  will  be  more 
effective. 

The  negative  have  stated  that  under  their  plan  certain  interstate  cor- 
porations would  be  required  to  take  out  federal  licenses  and  that  others 
would  not.  Now  they  must  tell  us  what  corporations  would  be  required 
to  take  out  licenses.  They  must  answer  this  question,  or  their  plan  must 
be  condemned  as  impracticable. 


Second  Negative,  Mr.  Wettrick,  Michigan. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  gentlemen  have  told  you  that  a  license  is  as  near  like  a  charter 
as  it  can  be.  If  licenses  are  as  near  like  charters  as  they  can  be,  why  do 
such  men  as  Wilgus  and  Ex^Commissioner  of  Corporations  Garfield  spend 
so  much  of  their  time  distinguishing  between  them  ?  They  have  these 
authorities  with  them.  Let  them  quote  from  these  men  to  the  effect  that 
they  are  the  same  thing,  if  they  can  do  so.  They  have  quoted  Garfield 
as  saying  that  the  diversity  of  state  laws  amounts  to  anarchy.  Let  us 
see  what  he  says  about  federal  incorporation  and  federal  license,  which 
they  say  are  the  same  thing.  Here  is  what  Garfield  says  in  his  report 
of  1904: 

30 


DEBATE:    FEDieRAiv  Incorporation 

"I  object  to  federal  incorporation,  first,  because  of 
the  drastic  nature  of  the  change;  second,  because  of 
the  obvious  reduction  of  state  revenue ;  third,  because  of 
the  tremendous  change  toward  centralization." 
And  then  he  says : 

"I  urge  Congress  to  adopt  a  federal  license,  first, 
because  it  secures  stability  and  uniformity ;  second,  be- 
cause it  preserves  the  states'  right  of  taxation;  and 
third,  because  it  nationalizes  national  business" — 
exactly  what  the  gentlemen  have  been  contending  for  this  evening.     No, 
we  are  not  embracing  federal  incorporation  when  we  advocate  a  federal 
license.     We  don't  want  any  more  centralization  than  is  necessary.     If  a 
license  will  do,  we  don't  want  a  charter.     A  charter  takes  everything  out 
of  the  hands  of  the  states.     A  license  preserves  duality  of  control.     Un- 
der it,  if  Congress  acts,  well  and  good ;  if  not,  the  states  can  continue  to 
do  their  best.  Remember  this,  that  while  we  have  no  assurance  that  Con- 
gress will  act  under  the  license  any  more  than  under  the  charter,  the 
license  has  this  important  advantage ;  it  does  not  tie  the  hands  of  the 
states ;  if  Congress  does  nothing  the  states  can  still  do  their  best. 

The  gentlemen  ask  us  how  this  scheme  is  going  to  work.  We  have 
shown  you  how  it  is  going  to  work.  As  for  the  details,  if  we  may  ex- 
pect anything  from  that  Congress  to  which  they  would  give  all  power, 
we  can  let  it  attend  to  them.' 

They  say  that  there  would  be  no  loss  in  state  revenue ;  that  Congress 
could  give  the  states  the  right  to  tax  the  franchises  of  the  corporations. 
But  the  United  States  Supreme  Court  has  held,  in  the  case  of  McCul- 
longh  vs.  Maryland,  that  a  state  cannot  tax  the  franchise  of  a  federal  cor- 
oration.  Furthermore,  what  is  the  use  of  taking  these  matters  away  from 
the  states,  if  you  are  going  to  give  them  back  again? 

They  ask  us  whether  it  is  right  that  little  New  Jersey  should  create 
corporations  and  then  send  them  out  to  break  the  laws  of  other  states. 
Certainly  it  is  not,  but  we  have  already  shown  you  that  Congress  can 
prohibit  any  corporation  from  engaging  in  interstate  business  by  shut- 
ting it  up  in  the  state  whose  laws  are  objectionable,  if  it  wants  to.  Con- 
gress can  prevent  centralization  in  New  Jersey,  which  the  gentlemen  say 
is  worse  than  centralization  at  Washington,  without  taking  from  the 
states  the  power  of  creating  the  corporations. 

Why  does  not  Congress  exercise  the  power  which  it  has?  Is  not 
this  inactivity  of  Congress  the  primary  cause  of  existing  conditions  and  the 
only  excuse  for  this  measure?  They  say  we  must  have  more  effective 
control  over  interstate  commerce.  We  agree  with  them,  but  we  say,  let 
Congress  exercise  the  power  which  it  now  has,  which  by  their  own  show- 

31 


DEBATE:     Fe:deral  Incorporation 

ing  is  complete  over  interstate  commerce,  before  we  take  such  a  radical 
and  revolutionary  step — ^before  we  adopt  a  measure  which  while  ex- 
tremely overcentralizing,  would  involve  the  federal  government  in  what 
Justice  Story  described  as  "a  condition  of  miserable  servitude — a  condi- 
tion of  legal  administration  for  which  the  past  furnishes  no  guide  and  the 
future  offers  no  security." 

They  say  it  would  not  take  away  from  the  states  the  control  of  the 
domestic  business  done  by  corporations,  because  the  states  might  compel 
them  to  take  out  a  license.  A  state  compel  a  federal  corporation  to  take 
out  a  license?  Let  us  remind  you  again  that  a  state  can  do  nothing  with 
a  federal  corporation.  The  exercise  of  the  power  of  Congress  over  inter- 
state commerce  absolutely  precludes  action  on  the  part  of  the  states.  A 
state  could  not,  therefore,  compel  such  a  corporation  to  take  out  a  license. 

We  have  repeatedly  asked  the  gentlemen  to  show  us  the  connection 
between  the  evils  which  they  enumerate  and  the  charter  which  they  pro- 
pose. They  have  not  done  it.  Between  these  two  there  is  a  great  gulf 
which  they  have  bridged  over  with  a  lot  of  unwarranted  assumptions, 
but  they  have  not  shown  us  how  or  why  a  federal  charter  is  going  to  cure 
these  evils.  Gentlemen,  there  is  no  magic  in  federal  incorporation.  They 
say  that  all  corporate  evils  will  be  cured,  if  we  only  get  a  charter  at 
Washington.  If  we  want  to  cure  overcapitalization,  get  a  charter  at 
Washington.  If  we  want  to  cure  rebates,  get  a  charter  at  Washington. 
If  two  or  three  men  want  to  form  a  corporation  here  in  Chicago  and  sell 
a  dozen  wheel-barrows  over  in  Michigan,  get  a  charter  at  Washington.  I 
suppose  if  President  Angell  and  John  D.  Rockefeller  should  want  to  grow 
hair  on  their  heads,  the  gentlemen  would  tell  them  to  get  a  charter  at 
Washington. 


Second  Affirmative,  Mr.  Liver,  Chicago. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  negative  speakers  have  oflfered  a  series  of  untenable  objections 
to  our  plan.  When  they  suggest  a  federal  license,  they  must  abandon 
most  of  the  objections  to  a  federal  charter,  because  these  objections  are 
fully  as  valid  against  one  as  against  the  other. 

They  say,  apply  the  license  to  some,  but  not  to  all  interstate  com- 
merce corporations,  and  refuse  to  draw  a  line  of  demarkation.  Again  we 
ask  that  they  draw  this  dividing  line. 

They  fear  for  state  taxation.  It  is  fair  to  assume  that  one  of  the 
terms  to  be  prescribed  by  Congress  as  a  condition  to  the  granting  of  the 
federal  charters,  would  permit  national  corporations  to  be  taxed  similarly 
to  the  way  in  which  our  national  banks  are  now  permitted  to  be  taxed 

32 


Di^bate::     Fe:deral  Incorporation 

by  the  states.     The  only  change  so  far  as  taxation  is  conGerned  would  be 
along  the  line  of  uniformity,  much  to  be  desired. 

They  fear  for  local  business,  which  we  have  shown  you  would  re- 
main under  state  supervision.  In  fact  the  states  would  find  the  task  of 
regulating  local  business  infinitely  easier,  if  the  objects  of  their  control 
were  created  under  a  fair  and  uniform  national  law,  instead  of  by  the 
laws  of  other  and  laxer  states,  as  at  present.  '    i 

Surely  it  can  be  no  argument  against  our  plan  to  say  that  it  will  make 
dishonest  corporations  feel  the  stronger  arm  of  the  law.  On  the  contrary,, 
we  have  long  since  reached  the  point  where  such  corporations  should  be 
brought  to  time  by  the  poHtical  sentiment  of  the  entire  country,  speaking^ 
through  Congress.  ^-^^si 

They  urge  that  Congress  would  pass  no  better  law  than  most  of  the 
states  now  have.  A  national  law  would  inevitably  be  better,  for  Congress 
has  a  hundred  years  of  state  experience  to  guide  it,  and  in  addition  would 
be  free  from  the  ulterior  motive  by  which  laxity  in  the  state  law  has  \ 
been  brought  about,  viz.,  the  desire  for  corporation  fees.  Assuming 
that  New  Jersey's  representatives  in  Congress  would  contend  for  laxity 
in  the  national  law,  which  is  very  doubtful,  they  could  exert  only  their 
share  of  influence  in  any  event,  while  today,  corporations  created  by  that 
state  aflfect  the  whole  country. 

Our  opponents  pin  their  faith  to  a  federal  license  as  the  most  desir- 
able remedy  for  evils  we  have  shown  a  federal  charter  would  prevent  or 
overcome.  Having  admitted  the  evils  and  brought  forward  a  license,  it 
is  incumbent  on  the  negative  to  show  wherein  a  license  is  preferable,  rem- 
edially,  to  a  charter.  Their  saying  so  will  not  suffice.  This  vital  issue  over- 
shadows all  others  in  this  debate,  which  has  now  become  a  comparison 
between  two  remedies  offered.  The  very  instant  our  friends  from  Mich- 
igan admitted  the  evils  and  suggested  a  license  to  cure  them,  the  burden 
of  proof  in  this  discussion  shifted  to  the  negative,  who  must  therefore 
show  a  preponderance  of  reasoning  in  favor  of  a  federal  license  as  against 
a  federal  charter.  By  way  of  adding  to  that  burden,  let  us  further  com- 
pare the  two  remedies. 

First,  as  to  precedents.  We  have  been  shown  no  precedent  for  a 
license,  while  a  federal  charter  has  been  granted  to  railroads,  the  Panama 
Canal,  and  to  thousands  of  National  Banks,  the  conduct  and  control  of 
which  are  such  that  it  was  not  to  be  expected  that  the  analogy  would  be 
relished  by  our  opponents. 

Second,  a  license  is  questionable,  constitutionally,  whereas  a  charter 
is  concededly  so,  by  hypothesis  under  our  question. 

Third,  under  the  license  plan,  corporations  will  remain  subject  to  the 
absurdities  and  inequalities  of  state  taxation,  which  a  federal  charter  will 
fairly  unify. 

33 


D^BATje :    Federal  Incorporation 

Fourth,  the  license  plan  waits  for  the  evils  inherent  in  the  state  sys- 
tem to  attain  full  size,  then  by  indirection  seeks  to  grapple  with  them  as 
best  it  can,  whereas  incorporation,  upon  the  firm  basis  of  a  national  law, 
can  prevent  these  same  evils  from  materializing  at  all. 

Which,  then  seems  preferable,  remedially,  a  license  or  a  charter? 
We  leave  for  you  to  decide  which  is  the  more  logical  and  effective  scheme. 

Seemingly  we  are  agreed  that  there  are  serious  corporation  evils, 
which  should  be  curbed  by  some  sort  of  legislative  remedy.  To  further 
accentuate  the  difference  between  our  masure,  the  charter,  and  that  of 
our  opponents,  the  license,  I  want  to  ask  the  next  speaker  on  the  nega- 
tive two  vital  questions.  First,  how  will  their  measure,  viz.,  this  unprece- 
dented federal  license,  reach  back  of  the  state  charters  and  cure  the  evils 
of  dishonest  promotion,  admittedly  one  of  the  worst  of  our  abuses?  And 
second,  how  can  the  gentlemen  of  the  negative  give  us  an  assurance  that  we 
can  ever  remedy  our  corporation  evils  so  long  as  the  charters,  the  all- 
important  things,  continue  to  be  granted  by  the  states,  a  few  of  which,  by 
the  laxity  of  their  laws,  can  still  defeat  and  annul  the  good  legislation  of 
all  the  other  states?  Throughout  this  entire  discussion,  the  gentlemen 
of  the  negative  have  studiously  avoided  these  vital  points,  and  now  in 
all  the  fairness  of  debate,  we  call  upon  the  next  speaker  of  the  negative 
to  tell  us  in  detail  what  he  thinks  the  answers  to  these  questions  ought 
to  be.     What  has  he  to  offer  by  way  of  clarification  ? 


Third  Negative,  Mr.  Eves,  Michigan. 

Mr.  Chairman,  Honorable  Judges,  La>dies  and  Gentlemen — 

The  gentlemen  seem  pretty  well  convinced  that  a  federal  incorpora- 
tion law  would  not  do,  they  have  ceased  to  argue  for  or  to  defend  it; 
they  have  become  interested  in  a  federal  license  and  want  us  to  tell  them 
about  it.  We  explained  all  about  that  once  and  we  haven't  time  to  re- 
peat it. 

They  ask  us  to  draw  the  line  above  which  corporations  would  have 
to  have  a  license  and  below  which  it  would  not  be  compulsory.  My  col- 
league has  already  pointed  out  to  the  gentleman  that  that  is  a  matter  of 
detail  to  be  left  to  Congress ;  we  are  only  concerned  here  with  the  prin- 
ciple. But  if  they  insist  upon  our  naming  the  amount  we  will  say  a  hun- 
dred or  a  hundred  and  fifty  thousand  dollars.  There  it  is.  I  don't  know 
whether  it  will  work  or  not.  But  if  it  won't  we  can  change  it  till  we  find 
one  that  will  work. 

They  declare  that  the  state  would  not  be  robbed  of  its  revenue  be- 
cause it  could  still  tax  the  tangible  property.  True,  but  the  state  would 
be  robbed  of  the  revenue  from  the  franchise.     If  the  corporation  gets  its 

34 


Debate  :     Federal  Incorporation 

charter  from  Washington  no  state  can  tax  the  franchise  that  charter  gives, 
and  thus  the  states  would  be  robbed  of  their  revenues. 

The  last  speaker  told  you  that  there  were  no  precedents  in  this  coun- 
try for  federal  license.  True,  but  how  about  the  precedents  for  the  char- 
ter system?  There  are  just  two:  the  incorporation  law  for  the  District 
of  Columbia,  which  all  authorities  acknowledge  to  be  a  poorer  law  than 
any  state  ever  passed ;  and  the  Union  Pacific  Railroad,  which  proved  an 
abominable  failure.    , 

They  say  that  their  measure  would  not  bring  about  centralization. 
Now,  let  us  see  about  that — it  is  merely  a  question  of  mathematics. 
At  present  the  state  creates  the  corporation ;  under  their  plan  the  state 
would  be  deprived  of  this  power  and  the  Nation  would  create  the  corpora- 
tion. Thus  is  decreased  the  sovereign  right  of  the  state  and  increased 
the  sovereign  right  of  the  Nation.  And  to  that  extent  you  have  lessened 
the  power  of  one  and  increased  the  pKDwer  of  the  other,  and  this  is  cen- 
tralization. Such  would  not  be  the  case  under  a  license  system,  because 
the  federal  government  does  not  invade  the  sovereign  field  of  the  state; 
it  simply  bcomes  active  in  the  field  of  interstate  business  where  the  states 
never  had  any  sovereignty. 

They  tell  us  that  federal  incorporation  is  in  accord  with  our  system 
of  government.  We  remind  them  that  three  attempts  were  made  in  the 
Constitutional  Convention  to  give  to  Congress  the  right  to  create  corpora- 
tions and  that  every  attempt  failed.  They  were  willing  to  give  to  Con- 
gress the  right  to  control  the  corporation  in  interstate  business,  but  not 
the  right  to  grant  the  charter. 

Now  the  issue  in  this  debate,  in  spite  of  any  attempts  to  divert  it, 
remains  clear  cut  and  distinct.  It  is  not  whether  or  not  there  are  exist- 
ing evils ;  we  admit  that  there  are  evils.  Neither  is  it  in  regard  to  wheth- 
er we  should  have  more  efficient  federal  control  over  interstate  business 
or  not.  We  acknowledge  we  should  have.  But  it  is:  must  we  have  a 
federal  charter  to  secure  that  control  or  may  it  be  secured  in  some  other 
way?  The  affirmative  argue  that  federal  incorporation  is  the  only  way 
to  secure  federal  control ;  but  the  negative  has  shown  that  absolute  and 
efficient  control  may  be  secured  either  by  means  of  national  statutes  or  a 
federal  license  system.  They  say  that  dual  control  would  be  ineflFective ; 
we  remind  them  that  dual  control  has  worked  eminently  well  over  the 
individual  person  and  they  have  given  us  no  reason  why  it  would  not 
work  equally  well  over  the  artificial  person,  the  corporation.  They  de- 
clare that  a  federal  charter  is  practical ;  let  the  Pacific  Railroad  and  the 
District  of  Columbia  answer. 

The  negative  has  shown  that  federal  incorporation  is  radical  and 
revolutionary :  while  the  license  is  conservative  and  evolutionary.     By  a 

35 


Debate  :     FedErai.  Incorporation 

federal  charter  the  state  would  be  robbed  of  a  sovereign  right  and  of  a 
legitimate  source  of  revenue ;  by  the  license  system  the  state  still  creates 
the  corporation  and  collects  the  tax.  They  would  bring  about  political 
and  industrial  centralization ;  we  would  avoid  both  of  these  evils.  They 
would  destroy  the  balance  of  power ;  we  would  keep  it  unimpaired.  They 
would  work  injustice  to  the  small  corporations;  we  would  protect  and 
encourage  them.  They  would  impair  the  obligation  of  contracts;  we 
would  keep  it  sacred.  They  would  swamp  the  government  with^the  con- 
trol of  local  affairs ;  we  would  save  the  energy  of  the  national  govern- 
ment to  remedy  national  evils. 

Gentlemen,  because  federal  incorporation  is  drastic  and  subversive 
of  the  whole  system  of  American  government,  because  it  brings  more 
evils  than  it  attempts  to  remedy,  and  because  there  are  less  revolutionary 
and  more  practical  remedies,  we  plead  for  the  defeat  of  the  resolution. 


Third  AflSmiative,  Mr.  Sanderson,  Chicago. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

We  agree  with  the  gentlemen  of  the  negative  when  they  say  that 
there  are  corporation  evils  and  that  some  remedy  is  necessary.  We, 
therefore,  want  the  remedy  that  will  best  meet  these  evils.  And  right 
here  I  want  to  call  your  attention  to  the  fact  that  my  last  colleague  asked 
the  final  negative  speaker  these  two  vital  questions :  first,  how  will  a  fed- 
eral license  reach  dishonest  promotion,  one  of  our  worst  evils  and  already 
perpetrated  before  a  federal  license  could  touch  the  corporation?  Sec- 
ond, how  are  corporate  evils  ever  going  to  be  remedied  when  the  charters, 
the  most  vital  things  in  controlling  corporations,  are  granted  for  the  most 
part  by  a  few  states  which,  by  offering  lax  corporation  laws,  can  defeat 
the  good  intentions  and  good  legislation  of  all  the  -other  states?  The 
last  negative  speaker  did  not  answer  these  two  questions  because  he  could 
not.    These  weaknesses  are  inherent  in  the  negative  case. 

The  negative  say  that  the  District  of  Columbia  law  is  not  a  good 
law.     Let  me  compare  it  with  the  New  Jersey  law. 
Here  is  the  District  of  Columbia  law : 

Ten  per  cent  of  the  stock  must  be  subscribed  be- 
fore the  charter  is  granted. 

Ten  per  cent  of  the  stock  must  be  paid  in  before 
the  commencement  of  business. 

Full   annual   reports   to   government   officials    re- 
quired. 

Limits  placed  on  a  corporation's  indebtedness. 
Interholding  forbidden. 

36 


Debate:    Federal  Incorporation 


Now,  here  is  the  New  Jersey  law : 

No  form  of  charter  required  to  be  approved  by 
state  officials. 

No  limit  on  the  amount  of  indebtedness  a  corpora- 
tion may  incur. 

Stockholders  cannot  remove  directors. 
Promoters  are  required  to  make  no  report  of  the 
items  on  which  capitalization  is  based.  ] 

Interholding  of  every  form  is  allowed. 
That  comparison  shows  distinctly  the  laxness  of  the  New  Jersey  law 
as  compared  with  the  District  of  Columbia  law.  And  yet,  as  we  have 
repeatedly  shown  to  you,  a  large  per  cent  of  our  control  over  corpora- 
tions is  centralized  in  the  single  state  of  New  Jersey,  notorious  for  its 
liberality  in  the  granting  of  corporate  charters.  We  would  put  this  cen- 
tralization of  power  over  corporate  industries  in  the  hands  of  all  the  peo- 
ple through  the  medium  of  Congress. 

Neither  would  our  measure  burden  corporations  by  the  impairment 
of  the  obligation  of  contracts,  as  the  gentlemen  of  the  negative  have  con- 
tended. Look  into  the  provisions  of  the  measure  we  have  proposed. 
Overcapitalization  would  be  checked;  interholding  would  be  curtailed; 
and  publicity  would  be  enforced.  How  would  such  provisions  as  these 
burden  any  honest  corporations?  Certainly  Congress  would  not  put  any 
provisions  into  an  incorporation  law  that  would  burden  our  corporations 
by  impairing  the  obligation  of  contracts. 

Furthermore,  a  federal  license  would  have  to  apply  to  all  interstate 
corporations  or  none,  the  same  as  'our  measure,  if  you  put  it  into  opera- 
tion. The  negative  say  you  might  draw  the  line  on  corporations  with  a 
capitalization  of  say  fifty,  or  one  hundred  thousand  dollars.  But  on  the 
face  of  it  such  a  line  would  be  a  purely  arbitrary  division  with  no  jus- 
tice in  it  whatever.  Now,  let  me  point  out.  Ladies  and  Gentlemen,  how 
the  negative  have  stepped  into  a  serious  inconsistency.  They  seem  to 
imagine  that  Congress  will  pass  a  model  license  law  that  will  remedy  all 
the  evils,  and  yet  they  have  spent  a  great  deal  of  their  time  in  trying  to 
show  that  Congress  would  not  pass  a  good  incorporation  law.  I  cannot 
understand  their  reasoning.  A  federal  license  would  be  ineffective  and 
besides  would  result  in  a  serious  conflict  between  the  provisions  of  the 
license  and  those  of  the  state  charters.  Suppose  a  corporation  were  in- 
corporated in  Illinois  under  a  charter  requiring  a  certain  method  of  man- 
agement, and  suppose  that  a  federal  license  is  put  into  operation  requir- 
ing a  different  form  of  management.  What  is  the  corporation  going  to 
do?  It  will  then  be  doing  business  under  a  charter  requiring  and  a 
license  forbidding  certain  things.     Will  it  be  declared  illegal  and  deprived 

37 


DEBATE:    Federal  Incorporation 

of  its  life?  Will  it  be  compelled  to  seek  about  for  a  state  in  which  to 
incorporate  whose  corporation  law  does  not  conflict  with  the  federal 
license?  Or  will  the  license  override  the  charter  and  compel  the  state 
to  amend  its  laws  or  to  grant  to  the  corporation  a  new  charter?  These 
points  have  never  been  adjudicated  and  no  one  can  predict  the  outcome. 
If  the  license  does  override  the  state  laws  and  compels  IlHnois  to  amend 
its  laws  or  grant  new  charters  which  will  conform  to  the  federal  license, 
then  the  charters  will  not  comply  with  the  wishes  of  Illinois  at  all,  but 
will  be  dictated  by  the  federal  license.  And  if  the  federal  government 
is  going  to  dictate  the  charters  indirectly,  why  not  do  it  directly  and  sim- 
plify matters? 

We  are  contrasting  two  systems  here  tonight,  neither  of  which  is 
perfect,  that  we  might  see  which  has  more  merit.  Let  us  examine  them 
a  little  further.  It  is  surely  apparent  that  the  license  system  will  not 
effectively  deal  with  these  evils,  for  it  does  not  touch  the  charters  which 
are  the  all-important  thing  in  the  controlling  of  corporations.  Further- 
more, the  license  system  will  still  allow  the  states  to  bid  against  each 
other  for  the  corporation  fees  and  franchise  taxes;  and  so  long  as  this 
is  permitted  there  will  always  be  found  some  states  with  lax  corporation 
laws;  and  so  long  as  a  few  states  have  lax  laws,  corporations  from  all 
parts  of  the  country  will  go  to  these  states  to  get  their  charters,  and  then 
protected  by  the  loose  charter  issued  by  the  state  of  origin,  they  will  go 
into  other  states  to  transact  their  business,  just  as  they  are  now  doing, 
and  we  will  have  obtained  no  relief  from  existing  abuses.  But  federal 
incorporation,  as  we  have  shown,  would  enable  Congress  to  deal  effect- 
ively with  all  corporate  evils. 

We  now  come.  Ladies  and  Gentlemen,  to  the  crux  of  this  entire  de- 
bate. We  have  shown  that  the  charters  are  the  all-important  thing  in 
controlling  corporations,  and  three-fourths  of  our  important  industrial 
corporations  are  now  incorporated  under  the  lax  laws  of  New  Jersey, 
West  Virginia  and  Delaware.  The  whole  debate  then  resolves  itself  into 
this:  are  our  interstate  corporations  to  continue  to  be  chartered  by  the 
states  offering  the  laxest  laws,  as  will  be  the  natural  result  under  any 
system  based  upon  state  incorporation,  or  are  they  to  be  chartered  by  the 
strong  arm  of  the  federal  government,  whose  law,  to  reflect  the  public 
sentiment  of  this  country,  would  provide  for  effective  regulation?  Upon 
this  issue.  Honorable  Judges,  we  rest  our  case. 


38 


Northwestern  vs.  Chicago 

JANUARY  17,  1908 


NORTHWESTERN 
UNIVERSITY 


Judges: 

Mr.  Butterfield,  District  Attorney,  Wisconsin 

Justice  Magruder,  Justice,  Supreme  Court,  Illinois 

George  E.  Mason,  Attorney,  Chicago 


Northwestern   Team:  Chicago  Team: 

E.  C.  Arnold        '  Eugene  J.  Marshall 

S.  H.  Gilbert  Paul  Maurice  O'Donnell 

J.  D.  Evans  Harold  Glenn  Moulton 


Affirmative:  Northwestern 
Negative:  Chicago 

DECISION-CHICAGO  WON 


The    Debate 


FIRST  AFFIRIVIATIVE,  MR.  ARNOLD,  NORTHWESTERN. 

Mr.  Chairman^  Honorable  Judges,  Lcdies  and  Gentlemen — 

Stated  in  its  simplest  form,  our  question  tonight  is, — can  all  the  peo- 
ple better  express  their  ideas  concerning  the  control  of  interstate  corpora- 
tions, through  46  separate  state  governments ;  or  will  it  be  more  effective 
to  have  one  sovereign  power,  to  which  the  states  have  del^^ated  their 
control  ? 

We  are  well  aware  in  opening  this  debate  tonight,  that  those  who 
oppose  the  Federal  government  chartering  interstate  corporations  urge 
that  such  a  plan  would  be  an  innovation  in  our  industrial  methods.  But 
you  will  readily  recognize  that  this  objection  has  done  fatal  service  in 
by-gone  years.  In  a  contingency  similar  to  the  present,  during  our  earher 
history,  when  growing  conditions  demanded  a  more  secure  financial  pol- 
icy, the  same  destructive  argument  prevented  the  adoption  of  the  National 
Bank,  thus  crippling  this  country  with  a  disreputable  system  of  "wild 
cat"  banking  for  75  years. 

The  reason  that  our  corporations  are  chartered  by  the  states  today 
is  that  originally  commerce  was  comprehended  only  within  state  bounda- 
ries ;  there  was  no  interstate  commerce.  But  today  our  interstate  corpo- 
rations have  grown  into  gigantic,  national  systems. 

The  pre-requisite  of  all  legislation  is  its  necessity.  When  we  recall 
the  recent  amazing  centralization  of  wealth,  its  accompanying  practices, 
we  are  forced  to  realize  that  modern  industry  has  passed  the  stage  of 
mere  academic  discussion,  making  imperative  a  change  of  control  for 
interstate  corporations  commensurate  with  the  present  necessity.  Such  a 
plan  Federal  Incorporation  would  be.  It  would  be  keeping  pace  with  in- 
dustrial progress.  It  would  recognize  interstate  corporations  as  a  na- 
tional power.  It  would  provide  a  control  coextensive  with  their  opera- 
tions. 

That  there  is  an  imperative  demand  for  a  change  from  the  present 
system,  the  affirmative  will  maintain  upon  this  simple,  fundamental  prop- 
osition, namely — ^that  the  present  method  of  controlling  corporations  en- 
gaged in  interstate  commerce  is  inherently  inadequate,  and  presents  no 
hope  for  relief. 

The  first  indictment  against  the  present  control  is,  that  it  is  abso- 
lutely incapable  of  effective  regulation.  We  now  have  the  situation  of 
a  great  national  force  such  as  our  interstate  corporations  are,  left  to  the 
control  of  an  individual  state  with  its  limited  powers.     State  legislatures 

39 


r  Debate:    Federal  Incorporation 

are  more  easily  controlled  than  the  National  Congress.  This  helpless- 
ness of  the  State  to  protect  the  interests  of  the  public  is  for  two  reasons : 
— 'first,  because  all  the  states,  except  the  chartering  state,  are  constitution- 
ally prohibited  from  excluding,  or  controlling  the  internal  affairs  of  any 
interstate  corporation.  The  second  reason  is,  that  the  present  system 
permits  the  corporation  to  evade  the  law.  Witness  the  Southern  Pacific 
Railroad.  Chartered  in  Kentucky,  yet  it  does  not  own  an  inch  of  prop- 
erty and  has  never  done  a  penny's  worth  of  business  in  that  state,  the 
sole  object  of  securing  its  charter  there  being  to  use  its  technical  citizen- 
ship under  Kentucky's  court  decisions  to  escape  the  jurisdiction  of  the 
courts  and  evade  the  legislation  of  the  states  where  it  carries  on  its  busi- 
ness. Or,  take  the  best  known  illustration  of  today — ^the  Standard  Oil 
Company.  Why  isn't  it  controlled  as  a  majority  of  the  people  have  de- 
sired for  years?  Simply  because  the  states  are  absolutely  powerless  to 
interfere.  There  is  the  Standard  Oil  Company  of  New  Jersey,  Indiana, 
Ohio,  The  Waters  Pierce  Company  of  Missouri,  and  so  in  a  number  of 
the  states — all  these  organizations  subsidiary  to  the  Standard  Oil  Com- 
pany. And  when  one  of  these  companies  is  evicted  from  a  state,  one 
chartered  in  another  state  comes  in  and  carries  on  the  same  old  business 
by  the  very  methods  before  employed.  All  of  these  subsidiary  com- 
panies are  a  part  of,  and  play  directly  into  the  hands  of  the  Standard  Oil 
Company.  By  thus  permitting  the  interholding  of  stocks  and  by  subsid- 
iary organizations,  any  corporation  may  now  violate  all  the  laws  of 
business  and  morality  in  dealing  with  interstate  commerce,  while  the  peo- 
ple are  powerless  to  prevent  this  evasion  of  law.  We  are  therefore  com- 
pelled to  ask  the  negative  to  explain  how  any  system  so  constructed  as  to 
permit  the  unscrupulous  to  evade  the  law  with  impunity,  can  ever  effi- 
ciently conserve  the  interests  of  the  public  in  its  relation  with  interstate 
commerce. 

The  present  system  is  further  inadequate  because  there  is  now  no 
central  authority  which  the  people  can  hold  responsible  for  the  enforce- 
ment of  the  laws.  If  a  violation  is  brought  to  the  attention  of  the  state 
authorities,  they  frequently  shift  the  responsibility  to  the  Federal  gov- 
ernment ;  and,  if  a  complaint  be  entered  to  the  Federal  authority,  it  recip- 
rocates by  referring  the  question  back  to  the  state  governments.  Be- 
cause of  its  uncertainty  of  control,  the  effect  of  one  is  counteracted  by 
the  inertia  of  the  other.  And,  furthermore,  it  permits  acute  friction  be- 
tween the  state  and  the  nation  which  in  many  cases  has  proven  quite 
serious.  With  the  National  government  in  control  over  interstate  com- 
merce; with  46  states  separately  chartering  corporations;  with  each  of 
these  46  states  enacting  separate  statutes  affecting  such  corporations ;  with 
each  of  these  46  legislatures  having  ideas  of  legislation  differing  all  the 

40 


Debate::    Federal  Incorporation 

way  from  putting  felon's  stripes  upon  anyone  selling  trust-made  products 
as  did  Texas,  to  the  liberal  policy  employed  by  New  Jersey  of  granting 
charters  upon  most  any  terms  the  corporations  may  dictate;  with  these 
laws  after  being  enacted,  administered  by  46  different  state  executives 
of  diverse  ideas  and  political  faith ;  and  then  46  separate  state  supreme 
courts  construing  those  statutes,  scarcely  any  two  of  whose  opinions 
would  agree  upon  identical  facts;  and  then  the  distinction  between  the 
jurisdiction  of  the  State  and  national  government  being  uncertain  and 
ambiguous — consider  these  facts,  and  then  is  not  the  affirmative  fully 
justified  in  arguing  that  the  present  control  over  interstate  corporations 
is  uncertain,  chaotic,  and  positively  inadequate? 

Not  only  is  there  this  conflict,  but  the  states  both  war  among  them- 
selves and  bid  for  incorporation  fees  and  taxes  by  enacting  loose  and  non- 
restrictive  laws.  If  you  will  turn  to  section  101  of  New  Jersey's  corpo- 
ration laws,  you  will  find  that  it  discriminates  against  the  corporation  of 
any  state  that  does  not  admit  New  Jersey  corporations  upon  the  same 
basis  as  those  of  other  states.  By  similar  retaliatory  laws  and  competing 
inefficient  legislation,  intended  to  attract  large  corporation  fees,  the  states 
grant  a  maximum  of  privilege  with  the  minimum  of  responsibilty.  When 
by  granting  a  "roving  charter"  as  West  Virginia  does,  which  permits  a 
corporation  to  take  its  books  outside  the  state  and  allows  the  stockhold- 
ers to  meet  anywhere  on  earth ;  when  by  making  a  specialty  of  chartering 
"tramp  corporations"  as  does  New  Jersey ;  when  by  neglecting  to  provide 
for  publicity  of  which  a  majority  of  the  states  are  guilty,  is  it  any  won- 
der that  the  present  control  over  interstate  corporations  has  been  ren- 
dered practically  nugatory? 

Again,  the  present  system  is  inadequate  because  it  permits  legisla- 
tion to  be  circumscribed  by  geographical  lines,  dwarfed  by  local  ideas 
and  prejudices,  formulated  as  a  political  issue  in  behalf  of  a  political 
party.  "In  commerce  as  well  as  politics,  state  governments  will  repre- 
sent state  ideas,"  said  Judge  Amidon  before  the  American  Bar  Associa- 
tion. A  misguided,  over-zealous  statesman  may  now  railroad  a  bill,  dis- 
guised as  a  political  measure,  through  the  legislature  of  South  Dakota  or 
Arizona,  which  in  reality  vitally  affects  the  interests  of  a  stockholder  or 
corporation  in  New  Jersey  or  New  York.  Because  it  is  not  a  national 
issue  but  only  discussed  locally,  its  import  is  not  discovered  until  too  late 
to  prevent  its  passage.  We  find  the  anomalous  situation  of  a  New  Jersey 
court  adjudicating  the  rights  of  citizens  of  Illinois.  By  thus  localizing 
legislation,  the  good  of  the  whole  people  is  made  subservient  to  the  dic- 
tates of  the  few. 

Therefore,  because  of  the  magnitude  of  the  corporations'  power; 
because  of  the  absence  of  central  control,  which  permits  conflict,  state 

41 


Debate:    FederaIv  Incorporation 

jealousy,  and  the  placing  of  legislation  upon  the  auction  block  to  the 
highest  corporate  bidder ;  and  because  legislation  may  be  localized  in  the 
interests  of  the  few,  we  submit  that  the  states  are  incapable  and  hence 
inadequate  to  control  interstate  corporations. 

Our  second  indictment  is  that  this  inadequacy  is  essentially  a  part  of 
the  present  system  and  hence  inheres  in  it.  We  challenge  the  negative 
to  dispute  the  inherency  of  the  present  system  for  two  reasons: — first, 
because  the  power  of  the  state  to  safeguard  the  people's  interests  by 
inspecting  the  internal  management  of  interstate  corporations  is  denied  by 
the  Federal  Constitution,  and  therefore  no  amount  of  legislation  can 
reach  this  defect.  The  state's  authority  to  regulate  is  limited  to  a  certain 
local,  physical  area;  interstate  commerce  is  unlimited  and  national.  In 
the  second  place  the  state  jealousies,  the  bidding  for  incorporation  fees, 
the  enacting  of  a  repugnant  and  miscellaneous  aggregation  of  statutes, 
and  the  conflict  between  the  state  and  national  governments,  are  but  the 
natural  result  of  a  diverse  system  of  control.  We  submit  it  is  axiomatic 
that  these  defects  can  never  be  remedied  except  by  a  uniform  system  of 
control  of  all  corporations  engaged  in  interstate  commerce.  Now,  it  is 
very  obvious  that  uniformity  is  absolutely  impossible  and  beyond  the 
power  of  the  most  poetic  imagination  to  comprehend,  under  the  present 
system.  The  diverse  ideas  of  the  46  states,  differing  commercial  inter- 
ests, political  rivalry  between  the  North  and  the  South,  the  East  and 
West  sections  of  the  United  States,  reduces  such  a  proposition  to  an 
absurdity.  In  other  words  these  weaknesses  are  a  part  of  the  bone  and 
sinew  of  the  present  system  itself,  and  therefore  inherent. 

Our  third  indictment  is  that  the  present  control  has  been  productive 
of  positive  and  flagrant  evils.  So  infamously  notorious  are  these,  and 
so  well  known  have  been  their  effect  upon  our  industrial  life  that  a  mere 
mention  of  them,  without  comment  as  to  their  disastrous  result,  will  suf- 
fice. These  evils  as  enumerated  by  Secretary  Garfield  are:  secrecy  and 
dishonesty  in  promotion,  overcapitalization,  discrimination  and  the  giving 
of  rebates,  secrecy  in  corporate  administration,  misleading  and  dishonest 
financial  statements,  and  permitting  the  interholding  of  stock  by  rival 
corporations.  The  inevitable  effect  of  these  evils,  of  which  the  present 
system  is  the  parent,  has  been  to  shake  the  confidence  of  the  people  in  cor- 
porations, and  create  instability  both  in  the  corporations  and  the  popular 
mind. 

Now  let  us  briefly  summarize  the  affirmative  argument  thus  far : 

In  the  first  place  the  present  system  for  the  control  of  interstate 
corporations  is  incapable  of  effective  regulation ;  second,  these  weaknesses 
are  inherent  in  the  present  system,  both  because  of  constitutional  prohib- 
itions to  remedy  them,  and  uniformity,  without  which  better  control 

42 


Debate:    Federai^  Incorporation 

can  never  be  secured,  is  impossible;  third,  the  result  of  the  present 
system  has  been  to  foster  positive  and  flagrant  evils. 

For  these  reasons  we  submit  for  your  judgment,  the  fundamental 
proposition  stated  at  the  beginning  of  this  argument — ^that  the  present 
method  of  controlling  corporations  engaged  in  interstate  commerce  is 
inherently  inadequate. 


FIRST  NEGATIVE,  MR.  MARSHALL,  CHICAGO. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

It  is  a  well-known  fact  that  whenever  the  people  are  confronted 
with  a  serious  evil  there  is  always  a  tendency  among  reformers  to  seek 
relief  in  radical  measures.  We  concede  that  there  are  some  evils  in  the 
present  system  of  corporate  management  because  the  corporation  prob- 
lem is  a  new,  complex  and  enormous  one,  but  whenever  a  proposition 
is  made  to  change  by  one  arbitrary  act  the  political  and  industrial  insti- 
tutions that  have  taken  generations  to  develop,  it  is  well  to  examine 
closely  into  the  facts  to  see  if  such  a  drastic  measure  is  really  necessary. 
According  to  Mr.  Stimson,  testifying  before  the  Industrial  Commission, 
the  .proposition  so  eloquently  presented  by  my  opponent  means  that  "over 
90  per  cent  of  the  business  of  the  country  shall  be  taken  out  of  the  con- 
trol of  the  states  and  placed  in  the  hands  of  the  national  government.*^ 
Let  us  see  if  the  evils  of  which  our  opponents  have  spoken  justify  this 
tremendous  change.  With  reference  to  the  present  system  of  dealing 
with  corporations,  we  will  show  you  during  the  course  of  the  debate, 
that  it  is  not  quite  as  hopeless  as  our  opponent  has  tried  to  make  it  ap- 
pear. 

It  is  estimated  that  there  are  at  least  500,000  corporations  engaged 
in  interstate  commerce.  Illinois  has  chartered  65,000  corporations,  Penn- 
sylvania 60,000,  Tennessee  12,000,  Maine  15,000,  and  the  Secretary  of 
the  State  for  Maine,  has  stated  that  over  80  per  cent  of  the  corporations 
in  his  state  are  engaged  in  interstate  commerce.  These  corporations 
vary  in  size  and  character  from  the  huge  billion  dollar  steel  corporation 
to  the  ordinary  manufacturing  corporation  in  every  city  and  town.  Ac- 
cording to  Moody,  in  his  "Truth  about  the  Trusts,"  about  300  of  these 
corporations  are  recognized  as  great  corporations  and  national  in  charac- 
ter. Just  at  this  point  of  the  debate  I  want  to  call  your  attention  to  the 
fact  that  the  evils  of  which  my  opponent  has  just  spoken  are  character- 
istic of  only  a  comparatively  few  large  corporations.  As  President  Roose- 
velt has  repeatedly  pointed  out,  it  is  the  great  corporations,  national  in 
character,  that  need  national  control.  Take  for  example  the  corporations 
in  your  own  town  or  city.    They  are  not  national  in  character  and  scope,. 

43 


Debate  :    Federai,  Incorporation 

tWy  do  not  ship  goods  to  every  state  and  territory,  they  are  not  charac- 
terized by  excessive  overcapitalization,  compHcated  system  of  inter- 
holding,  and  dishonesty  of  promotion  and  management,  such  as  my  op- 
ponent has  so  eloquently  described.  The  vast  majority  of  corporations 
are  honest  and  make  every  attempt  to  conform  to  state  corporation  laws, 
and  when  it  is  urged  by  our  opponents  that  in  order  to  reach  the  evils 
found  in  a  comparatively  few  national  corporations,  that  the  federal  gov- 
ernment should  require  every  corporation  engaged  in  interstate  commerce 
to  take  out  a  federal  charter,  they  are  arguing  that  the  federal  govern- 
ment should  assume  control  of  hundreds  of  thousands  of  local  corpora- 
tions that  do  not  need  federal  control. 

The  burden  that  rests  upon  our  opponents  in  this  debate  is  a  tre- 
mendous one.  They  must  not  only  show  that  every  corporation  engaged 
in  interstate  commerce  should  take  out  a  federal  charter  'but  that  their 
particular  system  of  national  incorporation  will  cure  the  evils  of  whidi 
they  have  spoken,  that  it  will  do  so  without  inflicting  any  serious  injury 
to  industry,  and  that  their  proposed  national  incorporation  bill  would 
in  all  probability  be  passed  by  Congress.  On  the  other  hand,  the  position 
of  the  negative  is  simple  and  plain  and  eminently  conservative.  We  op- 
pose this  proposition  for  three  reasons :  first,  because  it  is  radical  and  im- 
practicable :  second,  because  it  is  inexpedient ;  third,  because  such  a  dras- 
tic measure  is  not  necessary.  I  shall  discuss  the  practicability  of  the  prop- 
osition of  the  affirmative. 

For  the  past  fifty  years  the  states  have  been  developing  a  system  of 
local  control  for  local  corporations  and,  in  so  doing,  they  have  accom- 
plished a  tremendous  amount  of  good  and  at  the  same  time  preserved  the 
great  democratic  principle  of  local  self-government.  As  for  corporations 
that  are  essentially  national  in  character,  such  as  the  trusts,  of  which  my 
opponent  has  just  spoken,  we  readily  concede  that  some  federal  legisla- 
tion, in  addition  to  what  we  now  have,  may  be  desirable ;  but  as  for  indus- 
tries that  are  distinctly  local  in  character,  such  as  the  saw-mills  of  Michi- 
gan, the  creameries  of  Wisconsin,  the  mines  of  Colorado,  and  the  fac- 
tories of  New  York,  we  believe  that  the  people  of  the  United  States  are 
regulating  these  local  industries  satisfactorily.  Yet  all  the  work  that  the 
states  have  done  along  this  line  for  the  past  fifty  years  and  at  the  same 
time  the  great  democratic  principle  of  local  self-government,  our  oppo- 
nents propose  to  change  completely  and  immediately.  Because,  mark 
you,  they  are  not  arguing  that  corporations  national  in  extent  should  be 
regulated  by  the  national  government,  but  that  all  corporations  that  trans- 
act any  interstate  commerce  should  be  so  incorporated. 

Let  us  see  what  corporations  if  any  this  proposition  does  not  include. 
In  the  Addyston  Pipe  Case,  Mr.  Justice  Field  decided  that  interstate 

44 


Debate:     Federal  Incorporation 

comtr.erce  incladed  all  transportation,  transit,  traffic  and  intercourse  be- 
tween the  inhabitants  of  different  states  as  well  as  all  contracts, 
agreements  and  sales  in  relation  thereto, — in  brief,  every  kind  of 
commercial  intercourse  between  the  inhabitants  of  different  states.  There- 
fore, the  proposition  of  my  opponent  must  include  every  industrial  estab- 
lishment in  the  country ;  all  transportation,  telephone  and  telegraph  com- 
panies, all  manufacturing  and  producing  companies  whether  engaged  in 
agriculture,  mining,  stockraising  or  fisheries,  if  they  ship  their  products 
outside  of  the  state.  So  all-inclusive  is  this  measure  that  not  only  the 
street  railways  of  the  city  of  Chicago  that  purchase  their  supplies  in  Gary, 
Indiana,  but  also  the  Northwestern  University  that  buys  its  supplies  out- 
side the  state  of  Illinois,  would  be  a  corporation  engaged  in  interstate 
commerce  and  would  have  to  be  chartered  by  the  federal  government.  If 
this  be  true,  it  means  that  the  state  charter  of  every  industrial  establish- 
ment in  the  country  will  be  destroyed  because  if  the  state  corporation 
charter  is  not  destroyed  but  is  permitted  to  remain  insofar  as  it  does  not 
conflict  with  the  federal  charter,  then  you  will  have  this  cumbersome  man- 
agement; here  is  the  same  body  of  men,  engaged  in  the  same  business, 
operaiing  under  two  different  charters,  one  state  and  the  other  federal, 
with  different  systems  of  capitalization,  different  systems  of  interholding, 
of  liability  of  directors,  of  keeping  accounts  and  doing  business ;  a  situa- 
tion that  will  cause  endless  conflict  between  state  and  federal  authorities 
over  the  control  of  local  corporations  and  will  result  in  increasing  attempts 
on  the  part  of  the  corporations  to  evade  corporation  laws  by  shifting  their 
business  back  and  forth  between  the  state  and  federal  entities  or  corpora- 
tions. Moreover,  Professor  Wilgus,  whom  my  opponents  have  quoted, 
maintains  that  if  their  measure  were  introduced,  it  would  seriously  inter- 
fere with  the  power  of  the  states  to  tax  corporations,  a  power  that  gives 
to  NeAv  York  tor  example,  over  $5,000,000  annually  in  legitimate  corpora- 
tion taxes. 

In  order  to  justify  this  tremendous  political  change  it  certainly  is 
incumbent  upon  our  opponents  to  show  that  business  will  not  be  seriously 
injured  thereby;  but  the  truth  of  the  matter  is,  this  proposition  would 
demoralize  our  entire  industrial  situation.  Our  business  interests  are  so 
large  and  at  the  same  time  so  delicately  adjusted,  that  a  word  from  James 
J.  Hill,  in  1907,  about  Northern  Securities  stock,  precipitated  a  national 
panic  while  the  failure  of  Augustus  Heinze  was  felt  in  every  town  and 
hamlet  in  the  land ;  and  yet  it  is  almost  impossible  to  conceive  of  a  more 
radical  innovation  in  business  than  this  measure  contemplates.  According 
to  every  recognized  authority  of  federal  incorporation,  this  measure  means 
that  every  corporation  engaged  in  interstate  commerce  must  be  rechartered 
and  examined  by  the  federal  government.     Here  is  the  practical  situation 

45 


Debate:    Federai<  Incorporation 

that  confronts  us.  Here  are  500,000  corporations  of  all  sizes  and  char- 
acter! Do  our  opponents  intend  to  regulate  those  now  in  existence  or 
those  which  shall  come  into  existence  in  the  future?  If  they  do  not  in- 
tend to  regulate  those  now  in  existence,  then  they  will  leave  unregulated 
that  vast  number  of  corporations  which  the  first  speaker  said  were  de- 
frauding and  oppressing  the  people.  If  they  do  intend  to  try  to  regulate 
the  corporations  now  in  existence,  then  here  is  the  practical  question  I 
want  to  put  to  you  as  business  men.  Is  it  physically  possible  for  any 
body  of  men  to  take  every  corporation  engaged  in  interstate  commerce, 
examine  into  the  details  of  its  business,  eliminate  all  of  the  evils  of  which 
my  opponent  has  spoken  and  then  send  those  corporations  out  into  the 
world,  honest  in  their  organization  and  operation?  Is  it  physically  pos- 
sible to  do  so  ? 

Take  the  evil  of  overcapitalization,  which  every  recognized  authority 
of  federal  incorporation  says  should  be  eliminated  in  the  chartering  of 
corporations.  These  corporations  are  in  existence,  their  stock  is  upon 
the  market  and  in  the  hands  of  the  people,  while  the  evils  that  flow  from 
overcapitalization  have  been  done.  In  rechartering  these  corporations 
l)y  the  federal  government,  new  stock  must  be  issued.  I  ask  my  oppo- 
nents to  tell  how  they  intend  to  call  in  the  stock  now  upon  the  market, 
readjust  and  reapportion  its  value,  make  it  conform  to  one  arbitrary 
standard  and  then  redistribute  it  back  among  the  people  as  stock  in  a  Fed- 
eral corporation? 

Is  it  physically  possible  to  accomplish  such  a  task  without  precipitat- 
ing a  national  panic?  Add  to  this  fact  the  other  evils  of  which  our  oppo- 
nents have  spoken  and  which  they  expect  to  eliminate  in  the  re-chartering 
of  the  corporations,  and  it  will  be  evident  on  the  surface  of  things,  that 
the  proposition  of  the  affirmative  is  so  impracticable  it  could  never  be 
introduced  without  deranging  our  entire  industrial  and  political  system. 

My  opponent  has  cited  the  National  Banking  system  to  prove  that 
their  measure  is  practicable.  Think  of  it,  Honorable  Judges,  taking  the 
National  Banking  system  as  a  precedent!  The  National  Banking  sys- 
tem involves  5,000  banks,  this  proposition  involves  500,000  corporations ; 
the  former  is  a  voluntary  system  of  incorporation;  the  latter  is  compul- 
sory; the  former  deals  with  one  kind  of  a  monetary  institution,  a  bank, 
the  latter  deals  with  all  corporations  of  all  sizes  and  character.  Under  the 
National  Banking  system,  if  any  abuses  creep  in,  the  government  appoints 
a  receiver  for  the  bank  and  tries  to  keep  it  on  its  feet ;  under  national  in- 
corporation, if  any  corporation  violates  the  laws,  its  corporate  existence  is 
destroyed.  Take  these  two  systems,  place  them  side  by  side,  compare 
them  in  any  detail,  show  me  in  any  respect  where  an  analogy  exists,  then 
and  not  until  then  should  our  opponents  argue  that  because  the  federal 

46 


*  DEBATE:      FjeD^RAL  INCORPORATION 

government  permits  5,000  banks  to  incorporate,  it  is  practicable  for  her  to 
compel  500,000  corporations  to  take  out  national  charters. 


SECOND  AFFIRMATIVE,  MR.  GILBERT,  NORTHWESTERN. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  first  affirmative  speaker  has  shown  that  the  present  method  of 
controlling  interstate  corporations  is  inherently  inadequate,  and  has  given 
rise  to  positive  and  flagrant  abuses.  It  is  my  purpose  to  show  that  the 
state  chartering  and  state  regulation  of  interstate  corporations  offers  no 
hope  for  a  correction  of  these  positive  abuses  to  the  public.  We  have 
sttn  how  the  present  laws  have  led  to  the  promiscuous  granting  of  state 
charters  to  interstate  corporations,  and  to  insufficient  regulation  by  such 
chartering  states  giving  rise  to  these  abuses.  It  then  devolves  upon  each 
state  to  protect  itself  from  these  evils  which  the  chartering  state  makes  no 
pretense  at  regulating.  But  no  state  has  the  power  to  protect  its  citizens 
by  controlling  the  offending  corporation  which  has  taken  out  a  charter  in 
a  foreign  state.  A  state  has  no  jurisdiction  whatever  over  the  internal 
affairs  of  a  foreign  corporation,  of  its  organization  or  management,  of  its 
dissolution  or  the  winding  up  of  its  business.  These  things  which  are 
most  vital  to  corporate  regulation  are  left  entirely  to  the  chartering  state. 
The  negative  may  say  that  the  state  has  ample  power  over  the  foreign 
corporation  since  it  can  exclude  from  doing  business  within  its  borders 
and  so  may  subject  it  to  such  regulation  as  it  chooses  as  a  prerequisite  to 
doing  business.  But  a  state  cannot  exclude  transportation  corporations 
nor  the  interstate  commerce  activities  of  an  industrial  corporation.  It  is 
true  the  state  has  the  power  to  exclude  an  industrial  corporation  from 
manufacturing  within  its  borders,  or  from  prosecuting  its  business,  so 
long  as  the  restrictions  do  not  interfere  with  interstate  commerce.  But  to 
restrict  industry  is  not  a  practical  means  of  protection  from  its  abuses. 
States  are  inviting  corporate  industry  as  necessary  to  develop  their  re- 
sources, and  to  stop  those  industries  already  established  from  pursuing 
their  labors  would  destroy  the  industrial  prosperity  of  any  state.  Busi- 
ness is  too  vital  to  existence  and  prosperity  to  be  excluded,  although  at- 
tended by  serious  evils.  A  prerequisite  to  corporate  regulation  is  that  it 
must  not  restrict  industry,  but  control  its  activities  while  fostering  its  de- 
velopment. The  exclusion  of  business  destroys  prosperity.  Practically 
speaking,  the  individual  state  has  not  the  power  to  protect  its  citizens 
from  unsound  interstate  corporations. 

The  sole  recourse  of  this  situation  under  the  present  conditions  is  to 
patch  up  the  inability  of  the  states  with  federal  laws.  But  federal  laws 
can  never  afford  a  remedy  for  the  defects  in  state  control  simply  because 
they  are  not  coextensive  with  the  evils  sought  to  be  remedied.     Federal 

47 


D^BAT^:      FEDERAL  INCORPORATION 

laws,  like  state  laws  regulating  foreign  corporations,  leave  those  questions 
relating  to  organization,  internal  control  and  regulation ;  rights,  duties  and 
liabilities  of  officers ;  issue,  payment,  and  transfer  of  stock ;  declaring  and 
paying  of  dividends ;  power  to  hold  stocks  of  rival  corporations ;  entirely 
to  the  chartering  state, — and  it  is  from  insufficient  regulation  in  these  re- 
spects that  the  chief  abuses  arise. 

The  federal  laws  which  we  have  are  very  difficult  to  enforce.  They 
wait  till  the  abuses  are  in  existence  and  then  attempt  to  destroy  them  by 
lawsuits.  The  system  which  fosters  the  abuses,  namely,  unsound  organi- 
zation of,  and  insufficient  management  by  the  chartering  states,  remains 
unchecked,  and  we  find  that  federal  laws  are  constantly  defeated  by  eva- 
sion under  these  state  laws.  So  the  Northern  Securities  Company  case, 
an  exceptional  victory  under  the  Sherman  Act,  was  practically  defeated. 
"The  several  railroads  that  made  up  the  Securities  Company  are  man- 
aged now  almost  precisely  as  they  were  before  the  order  of  dissolution 
was  entered." 

Other  federal  laws  attempting  to  prohibit  rebates  and  unfair  dis- 
crimination are  equally  difficult  to  administer.  They  would  be  much 
more  effective  if  the  government  had  a  firm  hand  upon  the  internal  affairs 
of  these  corporations.  To  regulate  their  formation,  in  President  Roose- 
velt's opinion,  offers  one  of  the  most  efficient  methods  of  regulating  their 
activities.  As  Commissioner  Garfield  forcibly  observes,  "The  imposition 
of  severe  penalties  will  not  end  industrial  evils.  We  must  find  and  re- 
move their  cause,  leaving  only  the  extreme  or  exceptional  cases  to  be 
dealt  with  by  criminal  statutes."  The  great  difficulty  of  securing  evidence 
to  convict  under  present  laws  is  well  known.  Besides  it  is  not  feasible  to 
carry  on  more  than  a  limited  number  of  lawsuits,  so  that  this  attempted 
regulation  of  corporations  by  means  of  lawsuits  imposes  upon  the  courts 
an  impossible  burden.  "Such  a  law  to  be  really  effective  must  of  course 
be  administered  by  an  executive  body,  and  not  merely  by  means  of  law- 
suits." According  to  President  Roosevelt,  "the  design  should  be  to  pre- 
vent the  abuses  instead  of  waiting  until  they  are  in  existence,  and  then 
attempting  to  destroy  them  by  civil  or  criminal  proceedings."  So  we  see 
that  federal  laws  are  not  co-extensive  with  the  evils  sought  to  be  reme- 
died; they  do  not  control  the  organization  nor  the  management  without 
which  there  can  be  no  effective  regulation;  and  those  laws  prohibiting 
rebates  and  unfair  discrimination  are  very  difficult  to  enforce  because  of 
the  opportunities  for  evasion  under  the  state  laws  and  because  of  the 
burden  placed  upon  the  courts  by  their  "lawsuit"  methods.  Thus,  the 
public  is  compelled  to  submit  to  a  system  of  corporate  chartering  under 
which  neither  the  states  nor  the  federal  government  are  able  to  regulate 
the  corporate  life. 

4« 


Debate:    Federal  Incorporation 

Not  only  is  the  public  left  unprotected  from  abuses  at  the  hands  of 
interstate  corporations,  but  the  honest  industries  are  themselves  handi- 
capped by  competition  with  unscrupulous  and  uncontrolled  industry  and 
by  being  subjected  to  the  mandates  of  two  masters.  As  Judge  Amidon 
observes,  "The  state  laws  in  force  discriminating  against  foreign  corpora- 
tions are  both  more  vicious  in  character  and  more  varied  in  form  than 
those  of  the  earlier  period." 

But,  it  is  said,  corporation  law  is  new  and  the  tendency  of  the  various 
states  is  to  provide  good  corporation  laws.  But  if  there  be  any  hope  of 
securing  efficient  corporate  regulation  under  the  present  system,  it  must 
be  by  effecting  a  soundness  and  uniformity  in  46  state  laws  regulating  in- 
terstate corporations,  and  I  submit  that  there  is  absolutely  no  hope  of  get- 
ting 46  independent  states  to  provide  sound  corporation  laws. 

In  the  first  place  the  revenue  from  charter  fees  is  a  constant  induce- 
ment to  each  state  to  offer  liberal  laws.  This  fee  is  usually  a  per  cent 
charged  upon  the  capitalization,  and  many  states  set  no  limit  to  the  amount 
at  which  a  corporation  may  capitalize  except  its  ability  to  pay  the  franchise 
fee.  This  revenue  is  "a  strong  and  positive  motive  leading  the  state  leg- 
islatures toward  lax  and  improper  corporation  laws." 

"And,  even  if  all  the  states  were  actuated  by  most  correct  motives, 
nevertheless  it  is  obviously  impossible  that  46  different  jurisdictions 
should  agree  on  anything  like  a  uniform  system  in  so  important  a  matter 
as  corporation  law."  Local  politics  defeat  it;  the  diverse  characteristics 
of  the  legislative  bodies  defeat  it;  local  prejudices  defeat  it.  These 
differences  are  inevitably  recorded  in  the  enacted  law.  But,  not  only  arc 
there  46  different  legislatures  with  all  the  variations  of  human  intelligence 
and  politicians,  but  there  are  46  varying  supreme  courts  to  interpret  the 
laws,  and  46  independent  executives  to  administer  the  law  after  enacted 
and  interpreted. 

But  we  are  not  left  to  speculate  upon  this  situation.  The  commis- 
sioners on  uniform  state  laws,  aided  by  the  American  Bar  Association, 
and  other  influential  means,  labored  ten  years  with  the  state  legislatures 
for  a  uniform  Negotiable  Instruments  Act.  As  a  result  thirty  states 
passed  the  act ;  all  but  two  of  these  states  modified  it ;  the  supreme  courts 
of  the  different  states  have  put  different  interpretations  upon  the  same 
clauses  of  this  act.  Again,  the  commissioners  on  Uniform  State  Laws 
report  for  1905,  *'To  attempt  to  draw  an  incorporation  law  that  would  be 
likely  to  receive  the  legislative  sanction  of  all  the  states  is  a  task  from 
which  your  committee  shrink."  The  report  for  1907  corroborates  this 
when  it  tersely  states,  "Voluntary  co-operation  of  the  states  seems  to  be 
unattainable." 

49 


Debate:    Federai,  Incorporation 

So  from  experience,  as  well  as  from  reason,  we  are  warranted  in 
saying  that  even  if  there  were  no  positive  inducement  to  each  state  to 
grant  loose  corporation  laws,  yet,  politics,  local  prejudices  and  diverse 
public  sentiment  reflected  in  the  state  legislatures,  would  defeat  any  at- 
tempt at  uniformity. 

We  have  then  shown,  first,  that  the  promiscuous  granting  of  state 
charters  to  interstate  corporations  has  given  rise  to  positive  and  flagrant 
abuses ;  second,  that  the  individual  state  has  not  the  power  to  correct  the 
abuses  of  corporations  chartered  by  other  states  because  a  state  has  no 
jurisdiction  over  the  internal  affairs  of  a  foreign  corporation,  and  the 
power  to  exclude  interstate  corporations  is  not  a  practical  defence ;  third, 
federal  laws  cannot  supply  the  deficiency  in  state  regulation  since  they  do 
not  reach  the  organization  nor  management  of  the  corporation  which  is 
essential  to  effective  regulation,  and  those  federal  laws  which  we  have 
are  largely  defeated  by  evasion  under  the  state  laws,  and  by  the  great  bur- 
den imposed  upon  the  courts  by  their  "lawsuit"  methods ;  and  finally,  we 
have  seen  that  there  is  absolutely  no  hope  of  securing  wise  and  uniform 
laws  from  46  different  states.  It  is  folly  to  continue  a  system  inherently 
inadequate  to  correct  the  abuses ;  inadequate  to  free  honest  industry  from 
present  hindrances ;  inadequate  to  give  us  financial  safety  and  industrial 
prosperity;  and  which  leaves  us  subject  to  unsettled  values,  destroyed 
credit  and  unchecked  speculation. 


SECOND  NEGATIVE,  MR.  O'DONNELL,  CHICAGO. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

My  colleague  has  pointed  out  the  far-reaching  consequences  which 
would  follow  the  adoption  of  the  measure  of  the  affirmative.  He  has 
shown  that  it  would  necessitate  a  complete  change  in  our  political  and  in- 
dustrial institutions.  He  has  shown  further  that  any  reform  which  con- 
templates the  complete  reorganization  of  all  corporations  in  order  to  elim- 
inate the  evils  in  a  few  is  so  impracticable  that  it  could  never  be  put  into 
operation. 

It  devolves  upon  me  to  show  further  that  this  measure  is  called  for 
in  nowise  and  is  inexpedient.  I  intend  to  support  this  proposition  on 
three  grounds.  First,  there  is  absolutely  no  reason  for  requiring  small 
local  corporations  to  charter  under  a  national  incorporation  law.  Second, 
as  to  the  large  corporations  the  balance  of  expediency  and  policy  is  for 
allowing  them  to  be  chartered  by  the  states  as  at  present.  Third,  there 
is  no  reason  to  suppose  that  the  corporation  law  which  Congress  will 
pass  will  be  in  any  way  better  than  the  corporation  laws  of  the  states  to- 
day. 

50 


Debate:    Federal  Incorporation 

The  comprehensiveness  of  the  affirmative  measure  has  already  been 
pointed  out  by  my  colleague.  It  includes  every  corporation  in  this  coun- 
try which  buys  any  portion  of  its  supplies  or  sells  any  portion  of  its  pro- 
duct across  state  lines.  It  is  difficult  to  conceive  of  any  corporation  which 
does  not  engage  to  some  extent  in  interstate  commerce.  By  far  the  larg- 
est number  of  corporations  engaged  in  interstate  commerce  are  local  to 
some  one  state.  There  are  about  500,000  of  these  as  against  three  or  four 
hundred  which  are  not  local  to  any  one  state  but  do  business  in  a  number 
of  states.  Most  of  these  local  corporations  are  chartered  by  the  state 
where  they  carry  on  their  main  business;  they  affect  in  their  operations 
the  citizens  of  that  state  and  the  problems  they  present  are  local  to  that 
state.  These  corporations  the  affirmative  wish  the  national  government 
to  charter  and  wish  the  states  to  be  deprived  of  the  power  to  charter. 

The  affirmative  base  their  plea  for  national  incorporation  on  three 
grounds,  first,  that  the  laws  of  our  states  are  bad  and  vicious;  second, 
that  evils  exist  in  those  corporations;  and  third,  that  these  evils  are  of 
national  scope  and  concern. 

I  contest  each  of  these  grounds.  First,  the  corporation  laws  of  our 
states  are  sound.  They  are  as  satisfactory  as  any  other  branch  of  our 
law  which  is  of  recent  development.  The  affirmative  have  not  dared  to 
impeach  the  laws  of  all  of  our  states,  nor  of  most  of  our  states,  but  only 
those  of  three  or  four  states.  These  small  corporations  are  chartered  by 
the  state  in  which  they  do  their  principal  business;  they  are  scattered 
throughout  all  the  states  and  only  a  few  are  chartered  by  the  laws  of  the 
states  the  affirmative  impeach.  There  may  be  minor  defects  in  our  corpo- 
ration laws,  but  those  are  being  remedied  as  they  become  apparent  by  the 
application  of  the  law  in  the  courts.  Furthermore,  the  laws  of  the  states 
compare  more  than  favorably  with  the  corporation  laws  Congress  has 
passed  for  the  District  of  Columbia  and  with  the  charters  granted  to  the 
Pacific  Railroad. 

The  main  evils  which  the  affirmative  lay  at  the  door  of  all  corpora- 
tions are  not  to  be  found  in  these  small  local  corporations.  Our  common 
knowledge  makes  this  clear.  The  reasons  for  the  non-existence  of  these 
evils  are  equally  apparent. 

Let  us  take  up  the  three  principal  abuses  related  by  the  affirmative. 
First,  excessive  capitalization.  The  reasons  why  this  is  not  practiced  by 
organizers  of  small  corporations  are  these :  The  only  market  such  a  con- 
cern has  for  its  stock  is  local  to  the  place  it  operates.  The  investors  are 
local  business  men  who  know  the  trade  conditions  under  which  the  con- 
cern must  operate,  who  know  the  value  of  its  tangible  assets,  who  are  in  a 
position  to  make  a  sound  estimate  of  the  value  of  the  business.  These 
men  deal  on  equal  terms  with  the  organizers  and  would  refuse  to  buy 

51 


Debate:     Federal  Incorporation 

stock  if  the  total  issue  were  in  excess  of  the  real  value  of  the  concern. 
Nor  is  there  any  incentive  to  issue  excessive  amounts  of  stock  to  cover 
monopoly  profits  because  these  small  concerns  operate  in  the  face  of  com- 
petition and  have  no  monopoly  profits  to  conceal.  Second,  interholding 
of  stock  is  not  practiced  by  these  corporations  for  two  obvious  reasons; 
first,  most  of  these  small  corporations  are  chartered  under  state  laws  which 
do  not  permit  interholding;  second,  even  those  which  might  obtain  that 
power  from  the  state  are  nor  in  a  position  to  exercise  it  because  they  lack 
the  financial  resources  necessary. 

Third,  dishonesty  in  management  does  not  flourish  here,  and  again 
for  two  obvious  reasons :  First,  the  state  laws  hold  the  directors  and  offi- 
cers to  a  strict  liability  as  agents  and  trustees  for  the  stockholders ;  second, 
the  stockholders  take  an  active  interest  in  the  affairs  of  the  corporation, 
know' personally  the  officers  and  directors  whom  they  elect,  are  quick  to 
discover  any  dishonesty  or  inefficiency.  When  any  dishonesty  occurs 
they  have  a  speedy  and  effective  remedy  through  the  courts  and  by  the 
removal  of  the  offending  party  from  office. 

Evils  of  which  the  affirmative  complain  exist,  if  at  all,  only  to  a  slight 
extent  in  these  small  corporations.  But  even  if  any  evils  should  arise, 
the  case  is  not  one  which  warrants  national  intervention.  It  might  as  well 
be  argued  that  because  evils  exist  under  city  charters  that,  therefore,  Con- 
gress should  charter  our  cities  and  the  states  be  deprived  of  the  right  to 
charter  them.  These  evils,  if  they  ever  exist,  are  of  concern  to  the  state 
and  not  to  the  nation.  From  the  states,  moreover,  we  can  expect  a  speed- 
ier and  more  effective  remedy  for  local  abuses  than  we  can  from  the  na- 
tional government. 

We  challenge  the  affirmative  to  show  a  single  reason  why  these  small 
corporations  which  comprise  99%  of  the  corporations  engaged  in  inter- 
state commerce,  should  be  chartered  by  the  national  government  and  why 
the  states  should  be  deprived  of  the  right  to  charter  them.  As  the  large 
corporations  whose  resources  and  operations  are  not  confined  chiefly  to 
any  one  state  but  extend  into  many,  as  to  these  we  contend  that  the  bal- 
ance of  expediency  and  policy  is  for  leaving  them  to  be  chartered  by  the 
states  as  at  present. 

Let  us  take  up  in  order  the  evils  named,  and  the  policies  and  laws  of 
the  states  out  of  which  the  affirmative  contend  they  grow.  These  are  over- 
capitalization, interholding  of  stock,  and  dishonesty  in  management. 

Congress  cannot  deal  with  capitalization  on  any  other  basis  than  the 
«tates  have  found  feasible.  The  only  way  overcapitalization  can  be  pre- 
vented is  by  limiting  the  assets  which  may  be  capitalized  to  the  tangible 
assets — ^to  assets  of  certain  value.  But  to  do  this  would  be  to  prohibit 
every  sort  of  business  which  was  in  any  way  speculative  in  its  nature.   It 

52 


Debate:     Federal  Incorporation 

would  prohibit  the  development  of  mineral  resources,  the  building  of  rail- 
roads into  sparsely  settled  communities,  the  introduction  of  untried  im- 
provements into  manufacture.  Had  the  states  followed  this  policy  our 
western  railroads,  mines,  and  irrigated  farm  lands  would  be  the  dreams 
of  dreamers  and  not  the  realities  of  today.  The  affirmative  dare  not  con- 
tend that  Congress  would  follow  such  a  policy.  But  if  you  allow  intan- 
gible assets,  the  good  will  of  the  business  and  the  future  earnings  to  be 
capitalized,  who  can  best  appraise  their  value?  The  states,  Canada  and 
England  have  come  to  one  uniform  conclusion.  It  is  best  to  leave  this  to 
the  business  interested  in  the  concern.  Congress  cannot  adopt  with  any 
show  of  reason  a  different  conclusion. 

Furthermore,  to  reduce  the  capitalization  of  corporations  already  or- 
ganized would  be  to  deprive  thousands  of  stockholders  of  vested  property 
interests.  Do  the  affirmative  contend  that  Congress  by  one  legislative  act 
can  do  this  ? 

As  to  interholding  and  combinations  affected  by  means  of  it  we  need 
only  say  that  there  is  an  undoubted  and  apparently  irresistible  economic 
force  and  tendency  in  that  direction.  It  is  extremely  doubtful  if  any  leg- 
islation can  prevent  the  workings  of  this  economic  law,  if  it  be  desirable. 
The  most  legislation  can  do  is  to  direct  the  form  combination  shall  take. 
If  interholding  be  undesirable,  Congress  can  by  a  direct  statute  do  away 
with  it  as  effectively  as  by  an  incorporation  law  and  with  less  far- 
reaching  consequences. 

The  affirmative  have  laid  much  stress  on  dishonesty  in  corporate  man- 
agement. They  hold  forth  the  alluring  promise  that  Congress  can  pass  a 
law  which  will  make  all  men  honest.  But  they  must  be  more  specific  than 
this.  What  policy  is  Congress  going  to  pursue  other  than  that  which  the 
states  have  adopted?  The  states  hold  the  officers  and  directors  liable  as 
agents  and  trustees  of  the  stockholders.  The  stockholders  as  owners  of  the 
business  determine  what  powers  their  directors  shall  have  and  what  limi- 
tations they  will  place  on  the  exercise  of  that  power.  The  whole  efficiency 
of  the  corporate  form  of  business  is  based  on  the  delegation  of  powers  by 
the  many  to  the  few,  by  the  stockholders  to  the  directors.  What  those 
powers  should  be  and  what  checks  should  be  placed  on  its  exercise,  the 
states  have  left  to  the  owners  of  the  business.  Do  the  affirmative  contend 
Congress  will  adopt  a  different  policy?  Do  they  contend  that  Congress 
will  dictate  to  private  citizens  how  they  shall  manage  their  business  ? 

It  is  incumbent  on  both  sides  in  this  debate  to  give  their  opinion  as 
to  what  terms  Congress  may  prescribe,  what  provisions  Congress  may  in- 
sert in  its  incorporation  law  should  the  measure  of  the  affirmative  be 
adopted.  Would  the  national  incorporation  law  be  better  than  that  of  the 
states  ?    The  position  of  the  negative  on  this  point  is  clear.    The  corpor- 

53 


Debate:    Federal  Incorporation 

ation  law  that  Congress  will  pass  will  in  nowise  better  the  laws  of  the 
various  states.  There  are  numerous  reasons  for  this  statement.  The  men 
who  will  frame  the  national  law  will  come  from  the  various  states ;  they 
will  be  elected  by  the  same  voters  who  elect  the  state  legislators  who  frame 
our  state  corporation  laws ;  they  Will  be  familiar  with  the  corporation 
laws  of  the  states;  they  will  likely  follow  the  provisions  of  these  laws 
rather  than  embark  in  uncertain  theories.  Furthermore,  the  public 
opinion  which  will  mold  the  congressional  law  is  the  same  public  opinion 
which  is  today  molding  and  forming  the  laws  of  the  states.  Considering 
these  conditions,  is  it  reasonable  to  suppose  that  the  corporation  law  Con- 
gress will  pass  will  be  any  different  or  better  than  the  laws  the  states  now 
have? 

I  have  shown  that  the  measure  of  the  affirmative  is  uncalled  for  and 
inexpedient  for  three  reasons.  First,  there  is  absolutely  no  reason  for 
compelling  the  small  local  corporations  to  take  out  a  federal  charter.  I 
challenge  the  speaker  on  the  affirmative  who  follows  me  to  show  you  one 
single  reason  for  national  incorporation  of  local  corporations.  Second, 
the  balance  of  expediency  and  policy  is  for  having  the  large  corporations 
chartered  by  the  states  as  they  are  at  present.  And  third,  there  is  no 
reason  to  believe  that  the  law  which  Congress  will  pass  will  be  in  any  wise 
better  than  the  present  state  laws.  And  if  the  affirmative  cannot  answer 
these  arguments  their  case  must  fall. 


TraRD  AFFIRMATIVE,  MR.  EVANS,  NORTHWESTERN. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  negative  contend  that  under  federal  incorporation  a  large  num- 
ber of  corporations  doing  a  very  small  business  which  would  come  under 
interstate  commerce,  and  a  very  large  amount  of  local  business,  would  be 
required  to  take  out  a  federal  charter.  Now,  the  Supreme  court  has  de- 
cided what  constitutes  interstate  commerce;  but  they  have  not  decided 
what  constitutes  being  engaged  in  interstate  commerce.  And  we  contend 
that  this  would  be  decided  along  practical  rather  than  theoretical  lines ;  that 
only  those  corporations  doing  a  considerable  amount  of  interstate  com- 
merce would  be  declared  to  be  engaged  in  interstate  commerce.  Further- 
more, even  if  it  should  be  decided  as  our  opponents  contend,  they  have 
failed  to  show  wherein  it  would  work  hardship  to  any  sound  corporation 
to  be  required  to  take  out  a  federal  charter. 

It  is  true,  as  maintained  by  the  negative,  that  under  federal  incorpor- 
ation a  large  per  cent  of  these  companies  would  be  chartered  by  the  na- 
tional government.  But  because  the  corporations  are  chartered  by  the 
federal  government,  is  no  reason  why  their  property  and    civil    rights 

54 


Debate:     Federal  Incorporation 

should  be  controlled  by  Congress.  Our  question  says :  "On  such  terms 
as  Congress  may  by  law  prescribe."  Therefore,  we  contend  that  the  nega- 
tive have  no  right  to  assume  what  any  provision  of  this  law  would  be, 
unless  they  can  show  that  such  provision  is  absolutely  essential  to  an  ef- 
fective law.  We  have  shown  that  the  manner  of  promotion,  structure  and 
management  of  corporations  are  the  things  that  need  to  be  dealt  with.  It 
is  necessary  to  vest  in  Congress  only  the  power  of  determining  the  gen- 
eral character  of  these  corporations,  and  of  regulating  those  which  the 
states  can  not  properly  control.  Local  control  is  not  necessary  to  contract 
the  evils  which  we  have  mentioned.  It  is  only  reasonable  to  suppose  that 
this  law  would  be  in  harmony  with  our  dual  form  of  government,  leaving 
the  control  of  local  matters  to  the  states  and  giving  to  the  federal  govern- 
ment the  determination  of  those  things  essentially  national  in  scope  and 
influence.  We  challenge  the  negative  to  show  what  property  and  civil 
control  would  necessarily  be  lost  to  the  states. 

The  negative  contend  that  no  better  law  could  be  hoped  for  from 
Congress  than  we  now  secure  from  the  states.  The  highest  statesmanship 
in  this  country,  however  poor  that  may  be,  is  unquestionably  to  be  found  in 
the  national  Congress.  There,  are  to  be  found  a  broader  view  of  national 
questions  and  a  better  desire  to  legislate  in  the  interests  of  the  whole 
country,  rather  than  the  interests  of  some  locality.  But  we  do  not  base  our 
contention  for  federal  corporation  upon  the  superior  honesty  or  ability  of 
Congress.  It  is  simply  a  question  of  how  the  people  can  best  express  their 
will.  We  have  shown  that  because  of  state  rivalry,  local  prejudice,  lack  of 
responsibility  and  diverse  political  beliefs,  it  is  impossible  to  hope  for  good 
laws  from  the  states.  Congress,  on  the  other  hand,  representing  the  whole 
people  without  these  conflicting  interests  could  pass  a  good  law.  But 
whether  it  would  or  not  is  none  of  our  business  for  the  purpose  of  this  de- 
bate. 

It  is  my  purpose  to  prove  that  an  efficient  and  practical  remedy  for 
the  evils  of  the  present  system  may  be  effected  through  Federal  Incorpor- 
ation. By  the  statement  of  the  question  we  must  confine  ourselves  to  show- 
ing the  general  practicability  of  this  plan  as  a  means  of  correcting  corpor- 
ate abuses. 

I  shall  present  four  main  points:  First,  the  evils  may  be  cured 
through  federal  incorporation.  These  evils  are  secrecy  in  promotion  and 
management,  overcapitalization,  payment  of  unearned  dividends,  iack  of 
official  responsibility,  interholding  of  stock  by  rival  corporations,  and 
minority  control  by  means  of  the  holding  company.  Federal  incorporation 
will  remove  the  conflict  of  authority,  confusion  and  consequent  litigation 
of  the  present  system,  which  prevents  the  correction  of  those  evils. 

55 


Debate:    Federal  Incorporation 

We  now  have  46  sets  of  continually  changing  corporation  laws,  made 
by  independent  legislatures,  interpreted  by  independent  courts  and  admin- 
istered by  independent  executives.  Then  the  federal  government  attempts 
to  mend  matters  by  the  passing  of  more  laws.  Because  of  the  confusion 
and  conflict  of  authority  which  result,  it  is  impossible  to  have  laws  prop- 
erly adjudicated  and  enforced.  Federal  incorporation  will  necessarily 
bring  about  a  definite  fixing  of  authority  and  responsibility,  which  will  re- 
sult in  justice  to  both  the  corporation  and  the  public.  The  government 
would  deal  directly  with  its  own  corporate  creatures.  This  must  be  bet- 
ter than  the  present  cumbersome  methods  of  control.  The  present  con- 
flict of  authority,  confusion  and  consequent  litigation  would  be  removed 
so  that  corporate  evils  will  be  placed  in  direct  line  for  remedial  legislation. 
There  would  be  one  power  co-extensive  with  the  corporation,  fully  capable 
of  meeting  the  situation  and  entirely  responsible  for  that  situation.  Senti- 
ment for  reform  would  not  be  forced  to  expend  itself  in  useless  vituper- 
ation of  all  corporate  bodies,  but  could  be  crystallized  into  a  statute  cover- 
ing the  whole  matter. 

Requirements  governing  the  methods  of  promotion,  structure  and 
management  of  corporations  could  be  embodied  directly  in  all  charters. 
Reports,  showing  the  financial  condit'ion  and  business  methods  of  a  corpo- 
ration could  be  easily  secured. 

Proper  responsibility  of  officials  could  be  definitely  fixed;  holding 
companies  and  the  interholding  of  shares  by  rival  corporations  definitely 
prohibited.  Continued  disregard  of  these  requirements  could  be  met  by 
the  loss  of  corporate  existence. 

We  do  not  contend  that  all  corporate  evils  could  be  immediately 
cured  by  this  law,  but  do  claim  that  the  situation  would  be  brought  to  a 
place  vv'here  effective  action  might  be  taken.  These  matters  of  national 
concern  should  be  met  by  a  national  power,  able  to  deal  with  the  entire 
situation  in  the  interests  of  the  entire  country.  Present  evils  may  be 
cured  through  federal  incorporation. 

The  great  interstate  corporations  are  essentially  national  in  their 
activities  and  influences.  Their  form  and  management  have  a  vital  relation 
to  the  industrial  welfare  of  the  country.  Any  evils  connected  with  corpor- 
ate life  must  affect  people  living  within  the  influence  of  its  business  world. 

We  have  shown  that  the  present  system  is  essentially  unjust.  It  al- 
lows thte  government  of  one  state  to  determine  vital  matters  for  corpora- 
tions whose  existence  affects  the  welfare  of  the  whole  country.  It  renders 
ineffectual  the  good  laws  of  some  states  by  placing  their  citizens  under  the 
influence  industrially  of  unsound  corporations  chartered  by  other  states. 
As  opposed  to  this  federal  incorporation  is  essentially  just.  First,  it  is 
just  to  the  states.    It  protects  them  from  the  influence  of  corporations  in 

56- 


Dkbat^:     Federal  Incorporation 

the  determination  of  whose  form  and  management  they  have  no  voice.  It 
gives  them  their  proper  share  in  the  control  of  all  corporations. 

Second,  it  is  just  to  the  people.  It  places  the  control  of  a  matter  af- 
fecting all  the  people  in  the  hands  of  that  power  which  best  represents 
the  will  of  all  the  people.  Third,  it  is  just  to  the  corporations.  The  rights 
of  the  corporations  and  the  rights  of  the  people  do  not  conflict.  The  pro- 
tection of  the  people  does  not  necessitate  the  imposition  of  harmful  restric- 
tions upon  corporate  activity.  It  is  absurd  to  assume  that  federal  charter- 
ing would  work  harm  to  any  sound  corporation. 

Furthermore,  under  this  plan,  corporations  would  be  absolutely  sure 
of  their  own  rights  and  responsibilities,  which  is  denied  them  under  the 
present  system.    Federal  incorporation  is  just  to  all  concerned. 

Federal  incorporation  is  in  harmony  with  our  dual  form  of  govern- 
ment. Under  our  system  of  government,  the  federal  government  was 
formed  for  the  purpose  of  securing  the  united  action  of  all  the  states  on 
matters  essentially  national  in  scope  and  influence.  The  control  of  purely 
local  affairs  is  left  to  the  states.  The  only  place  where  such  action  may  be 
hoped  for  is  in  Congress.  Such  control  does  no  violence  to  the  principle 
of  local  state  government.  We  most  emphatically  protest  against  the  as- 
sumption of  the  negative,  that  federal  incorporation  must  bring  90  per  cent 
of  the  property  and  civil  rights  of  this  country  under  the  control  of  the 
national  government.  Such  a  course  is  neither  necessary  to  secure  an  ef- 
fective law,  nor  is  it  advocated  by  those  favoring  federal  incorporation. 

Under  the  present  system,  a  state  has  control  over  the  manufacturing 
and  producing  business  of  a  foreign  corporation  within  its  borders.  Under 
federal  incorporation,  there  need  be  no  transfer  of  this  local  power  from 
the  states  to  the  national  government,  but  simply  an  exercising  by  Congress 
of  a  power  which  the  states  by  the  very  nature  of  the  situation  cannot  ex- 
ercise. Only  those  matters  of  national  influence,  such  as  we  have  men- 
tioned, need  be  placed  under  federal  control.  We  would  simply  invest  in 
the  federal  government  the  power  of  determining  the  general  character  of 
interstate  commerce  corporations,  which  power  is  now  exercised  by  each 
state  over  corporations  whose  existence  affects  all  the  states.  It  is  more 
just  that  the  characters  of  all  the  great  corporations  be  determined  by  the 
national  government  than  that  each  state  exercise  this  power  over  a  few  of 
them.  Such  control  is  both  necessary  and  desirable.  The  great  corpor- 
ations are  a  vital  part  of  our  industrial  life,  but  they  are  dangerous  unless 
they  are  controlled.  The  national  government  must  exercise  power  com- 
mensurate with  the  forces  to  be  dealt  with.  Gigantic  industrial  combina- 
tions necessitate  a  powerful  authority  to  control  them.  Such  power  in 
the  government  is  a  necessary  safeguard  for  our  centralized  industrial  life. 
Federal  incorporation  is  in  harmony  with  our  dual  form  of  government. 

57 


Debate:    Federal  Incorporation 

Federal  incorporation  would  be  simple  and  easy  to  administer.  The 
simplicity  of  the  proposed  law,  and  the  ease  with  which  it  may  be  enforced 
are  large  factors  in  determining  its  worth.  Commissioner  Garfield  says : 
"Federal  incorporation  is  clean-cut  in  theory,  brings  the  whole  control  un- 
der one  head  and  reduces  friction  to  a  minimum.  No  complex  machinery 
of  the  government  would  be  required  to  operate  such  a  law.  It  could  be 
administered  by  the  bureau  of  corporations  and  adjudicated  by  the  present 
system  of  courts.  The  form  and  internal  management  prescribed  for  cor- 
porations could  be  definitely  stated  in  all  charters,  which  would  be  issued 
only  upon  satisfactory  evidence  that  all  the  requirements  of  the  federal 
law  had  been  complied  with.  No  corporations  objectionable  in  form  would 
be  brought  into  existence.  The  government  would  have  to  deal  only  with 
its  own  corporate  creatures.  This  would  greatly  simpHfy  the  work  of  ad- 
ministration. Federal  incorporation  would  strike  at  the  very  root  of 
corporate  evils  by  regulating  the  creation  of  corporations  and  prescribing 
the  conditions  of  continued  existence." 

It  would  be  distinctly  superior  to  the  present  system  under  which  the 
federal  government  attempts  to  correct  evils.  In  the  power  to  revoke 
charters  through  judicial  proceedings,  the  plan  of  federal  incorporation 
oflrers  simple  and  effective  means  for  its  enforcement.  No  corporation 
will  so  persistently  violate  the  law  as  to  risk  losing  its  charter.  Federal 
incorporation  is  simple  and  easy  to  administer. 

Neither  plan  can  be  free  from  a  dual  system  of  regulation ;  but  while 
the  charter  plan  minimizes  those  difficulties,  the  other  plan  increases  them. 
For  one  government  to  try  to  regulate  commerce  while  46  different  states 
undertake  to  regulate  the  corporations  that  carry  on  that  commerce,  will 
eventually  result  in  failure. 

In  proof  of  our  contention  that  the  present  system  of  corporate  con- 
trol is  inherently  inadequate  we  have  shown  that  it  has  given  rise  to  fla- 
grant and  positive  evils  in  the  manner  of  promotion,  structure  and  man- 
agement of  the  great  corporations.  That  the  states  cannot  remedy  these 
evils  for  the  following  reasons :  First,  the  rivalry  between  the  states  to 
secure  charter  fees,  and  the  local  prejudices,  lack  of  responsibility  and  di- 
verse political  interests  of  the  states  preclude  the  hope  of  uniformity  from 
46  independent  legislatures.  Second,  the  power  of  a  state  to  exclude  the 
local  activities  of  a  corporation  affords  no  real  protection  because  it  turns 
away  desirable  industry,  and  because  the  exclusion  of  this  local  desirable 
industry  does  not  free  the  state  from  the  unsound  industrial  situation, 
caused  by  the  evils  of  corporate  life. 

We  have  shown  that  under  the  present  system  the  federal  government 
cannot  remedy  these  evils  because  it  has  no  voice  in  determining  the  man^ 

58 


Debate:    Federal  Incorporation 

ner  of  promotion,  structure  or  internal  management  of  the  corporations, 
and  that  is  where  the  evils  are  to  be  found. 

And  finally,  we  have  shown  that  an  efficient  and  practical  remedy 
for  these  evils  may  be  effected  through  federal  incorporation.  That  the 
present  system  cannot  cure  these  evils  but  that  they  may  be  cured  through 
the  proposed  plan.  That  it  k  just  to  all  concerned.  That  it  is  in  harmony 
with  our  dual  form  of  government,  and  that  it  is  simple  and  easy  to  ad- 
minister. 


THIRD  NEGATIVE,  MR.  MOULTON,  CHICAGO. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  affirmative  have  strong  convictions  that  Congress  would  pass  an 
excellent  incorporation  law.  They  point  out  that  state  legislatures  have 
many  conflicting  interests,  that  they  are  easily  bribed,  etc.,  but  they  have 
unlimited  faith  in  Congress,  and  believe  it  is  a  body  which  acts  always 
without  discord,  in  perfect  harmony.  Now,  let  us  see  what  would  prob- 
ably be  the  attitude  of  Congress.  We  know  at  once  that  the  solid  south, 
still  clinging  firmly  to  the  idea  of  state's  rights  would  be  unalterably  op- 
posed to  the  measure.  Then  these  eastern  states,  which  the  gentlemen 
say  are  greedy  for  corporation  fees,  would  not,  if  they  are  greedy,  be  in- 
clined to  give  over  all  their  corporation  fees  and  taxes  to  the  federal  gov- 
ernment. The  conservative  Senate,  many  of  whose  members  are  unfor- 
tunately allied  with  corporations  would  hardly  be  disposed  to  pass  a  re- 
strictive corporation  law.  Why,  the  Littlefield  bill — far  less  drastic  than 
the  measure  which  the  affirmative  propose,  was  never  allowed  to  be  read 
in  the  Senate.  In  the  face  of  these  conditions  there  is  little  reason  to 
believe  that  a  law  such  as  Congress  might  pass  would  be  any  better  than 
those  of  the  states. 

The  gentlemen  still  insist  that  the  local  control  will  remain  with  the 
states.  We  quoted  the  authority  of  Mr.  Stimson  that  practically  90  per 
cent  of  the  business  of  this  country  would  be  taken  over  by  the  federal 
government ;  and  Professor  Wilgus,  the  one  great  advocate  of  federal  in- 
corporation, admits  that  it  is  true.  The  affirmative  hold  that  this  would 
not  include  all  the  corporations  that  we  have  enumerated,  but  only  those 
which  do  mainly  interstate  commerce — those  engaged  in  interstate  com- 
merce, which  they  say  is  a  matter  for  the  Supreme  Court  to  decide.  They 
say  that  the  Supreme  Court  has  decided  what  constitutes  interstate  com- 
merce, but  have  yet  to  decide  what  being  engaged  in  interstate  commerce 
means.  This  is  a  mere  evasion.  If  interstate  commerce  means  selling  or 
buying  goods  between  states,  then  it  follows  that  a  corporation  that  buys 

59 


DEBATE:     Federal  Incorporation 

or  sells  between  states  is  engaged  in  interstate  commerce.  There  is  no  dif- 
ficulty about  that. 

Now,  what  have  they  said  about  correcting  the  evils  of  corporations? 
They  have  merely  enumerated  five  or  six  abuses,  and  made  the  state- 
ment that  Congress  will  put  a  stop  to  them.  My  colleague  pointed  out 
that  you  cannot  check  the  evils  of  overcapitalization  of  these  corporations 
now  in  existence,  and  that  federal  incorporation  is  unnecessary  to  remedy 
these  other  practices.  This  is  a  practicable  question,  and  we  ask  the  gen- 
tlemen to  show  us  how  those  evils  are  to  be  corrected  by  federal  incor- 
poration. 

In  our  negative  case  thus  far  we  have  shown  that  this  proposition 
calls  for  a  tremendous  change  in  our  industrial  and  political  system — ^a 
change  so  sweeping  as  unquestionably  to  bring  detrimental  results.  We 
have  shown  in  the  second  place  that  all  corporations  should  not  be  included 
because  the  great  majority  need  no  federal  regulation.  We  have  shown 
in  the  third  place  that  the  measure  cannot  check  the  abuses  of  overcapital- 
ization ;  that  federal  incorporation  is  not  necessary  to  forbid  interholding 
and  punish  dishonest  practices.  And,  finally,  we  have  pointed  out  that 
there  is  no  reason  to  believe  that  Congress  will  pass  such  a  law  as  the 
affirmative  advocate  or  a  law  any  better  than  those  of  the  various  states. 
Upon  these  four  distinct  grounds  we  have  based  our  attack,  and  contend 
that  for  each  and  every  one  of  these  reasons  the  proposition  should  fall. 
By  no  rules  of  debate  can  it  be  held  incumbent  upon  the  negative  to  con- 
tend anything  further. 

But  we  should  not  have  done  justice  to  this  occasion  if  we  did  not 
accept  the  opportunity  to  correct  some  of  the  impressions  given  by  the  af- 
firmative as  to  the  utter  inadequacy  of  the  present  system  and  the  futility 
of  proceeding  along  present  lines.  They  have  painted  the  dual  system  as 
hopeless  and  that  conditions  are  going  from  bad  to  worse.  This  we  deny 
and  shall  produce  the  evidence  to  support  our  denial.  We  are  frank  to 
admit  that  many  abuses  exist.  With  the  phenomenal  industrial  develop- 
ment of  the  past  20  years  it  was  inevitable  that  evils  should  creep  in.  Leg- 
islation could  not  keep  pace  with  industry.  But  we  contend  that  now  the 
tide  has  turned  and  government  control  is  proving  effective. 

First,  let  us  consider  the  situation  in  the  states.  The  affirmative  has 
admitted  that  the  corporation  laws  of  many  of  the  states  are  good,  and  the 
summary  of  legislation  given  in  the  New  York  State  Library  Bulletin 
shows  that  the  states  are  continually  revising  their  corporation  laws  for 
the  better. 

But  more  pronounced  than  this  has  been  the  development  of  state 
commissions.  Fourteen  different  states  have  advisory  corporation  com- 
missions with  power  to  examine  corporation  affairs  to  see  if  they  are  con- 

60 


Debate:    Federal  Incorporation 

forming  to  the  charter  provisions ;  with  power  to  institute  investigations 
on  their  own  motion,  and  to  make  annual  reports  and  suggestions  to  the 
various  state  legislatures.  Seventeen  other  states  have  mandatory  com- 
missions with  power  to  fix  rates,  charges,  etc.,  of  which  the  Public  Ser- 
vice Commission  of  New  York  is  an  example.  There  has  been  no  other 
political  development  of  recent  years  so  remarkable  as  the  growth  and 
power  of  state  commissions.  That  they  are  effective  no  one  can  deny 
who  has  read  the  newspapers  of  late.  No  less  than  fourteen  states  have 
passed  2c  passenger  rates  and  many  have  reduced  freight  rates.  There 
are  suits  against  the  Standard  Oil  company  now  pending  in  fourteen 
states ;  and  twenty-six  states  have  laws  restricting  monopoly.  So  much  for 
the  activity  of  the  states.    Now,  what  is  the  federal  government  doing? 

I  need  only  to  call  to  your  mind  what  the  Interstate  Commerce  Com- 
mission has  done  since  it  has  the  power  to  fix  railroad  rates.  Rebates  and 
discrimination  have  largely  disappeared;  many  freight  rates  have  been 
lowered  by  the  Commission  and  a  still  larger  number  voluntarily  by  the 
roads  themselves  before  the  Commission  got  the  chance.  An  effective 
pure  food  law  has  been  passed,  the  Powder  Trust  and  the  Paper  Trust 
have  been  prosecuted,  the  Standard  Oil  Company  has  been  fined  $29,000,- 
000,  and  even  now  the  federal  government  is  prosecuting  wild  cat  mining 
schemes  in  Colorado  and  compelling  the  Tobacco  Trust  in  New  York  to 
render  an  account  for  its  actions. 

The  Bureau  of  Corporations  in  four  years  has  investigated  over  1,500 
industrial  corporations,  and  as  Roosevelt  says,  "turned  on  the  light  of 
publicity."  Where  got  the  gentlemen  their  information  as  to  corporate 
abuses  ?  Government  investigations  furnished  them  the  facts.  What  has 
made  this  discussion  so  prevalent  throughout  the  country?  Simply  this, 
that  state  and  federal  investigations  have  disclosed  the  abuses  and  com- 
manded public  attention. 

The  present  line  of  activity  then  is  clear — ^more  publicity,  stricter  en- 
forcement of  the  laws  we  now  have,  and  new  laws  as  experience  directs. 
It  may  be  contended  that  publicity  in  itself  is  only  a  partial  remedy,  but 
a  close  analysis  of  the  evils  pointed  out  by  the  affirmative  reveals  that 
overcapitalization,  interholding,  etc.,  are  not  primarily  evils  in  themselves, 
but  the  evils  have  flown  from  them.  It  is  deception  of  the  public,  con- 
cealment of  profits — ?secrecy  in  nearly  every  case.  Publicity  is  remedying 
and  will  continue  to  remedy  these  evils  which  have  been  done  in  the  dark. 

We  recognize  that  everything  cannot  be  done  in  a  day.  We  have 
had  an  industrial  evolution  and  a  legislative  evolution  is  needed  to  meet 
the  new  conditions.  That  legislative  evolution  is  already  far  advanced. 
There  have  been  many  who  fear  that  it  is  proceeding  too  rapidly  and  are 
calling  for  a  halt.    Be  those  fears  well  grounded  or  not,  there  is  no  one 

61 


Debate:    Federal  Incorporation 

who  can  deny  that  great  advancement  has  been  made,  that  a  new  political 
era  has  been  ushered  in. 

Ladies  and  gentlemen,  we  commend  for  your  favorable  consideration 
this  sane,  conservative,  American  method  of  reform,  rather  than  the  prop- 
osition advanced  by  the  affirmative,  a  proposition  which  should  fall  for 
four  reasons :  First,  because  it  is  so  radical  that  it  could  never  be  intro- 
duced without  unsettling  business  and  producing  a  panic ;  second,  because 
it  includes  hundreds  of  thousands  of  corporations  needing  no  federal  reg- 
ulation whatsoever,  also  diverting  thereby  the  attention  of  the  federal  gov- 
ernment from  these  really  great  national  problems,  which  it  is  now  solv- 
ing; third,  because  it  will  not  accomplish  what  the  gentlemen  claim  for  it; 
it  cannot  correct  the  evils  of  these  corporations  now  in  existence,  evils 
for  the  most  part  already  perpetrated ;  and  finally,  because  there  is  no  as- 
surance that  a  law  such  as  Congress  would  pass  would  be  any  better  than 
those  of  the  states.  With  the  negative  case  complete  we  submit  the  ques- 
tion. 


62 


The   Rebuttal 


First  Negative,  Mr.  0*Donnell,  Chicago. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  affirmative  began  this  debate  with  great  innuendos  against  the 
present  system  and  millennium  promises  for  national  incorporation.  They 
first  charged  all  corporations  engaged  in  interstate  commerce  with  serious 
evils  and  power  for  the  committing  of  evils.  The  negative  refuted  this 
absolutely  as  to  99  per  cent  of  these  corporations  and  showed  that  as  to 
the  elimination  of  evils  which  do  exist  in  certain  corporations,  there  is 
more  probability  of  quick  and  effective  remedy  under  the  present  system 
than  under  the  system  whch  the  affirmative  proposes. 

The  affirmative  have  advanced  in  favor  of  their  measure,  that  it  will 
give  us  a  uniform  law  and  that  under  the  present  system  the  good  laws 
of  some  of  the  states  are  evaded  by  some  of  the  corporations.  In  answer 
to  these  arguments  I  will  state  the  negative  position. 

We  contend  that  the  uniformity  which  the  affirmative  laud  is  not  only 
unnecessary  but  undesirable.  The  laws  which  meet  the  needs  of  busi- 
ness in  Massachusetts  would  fail  utterly  to  meet  the  requirements  of  bus- 
iness conditions  in  Arizona.  The  law  which  would  be  just  and  desirable 
in  Pennsylvania  would  strangle  business  in  Montana.  If  a  uniform  law 
was  best  fitted  to  meet  the  varied  conditions  throughout  the  country  we 
would  see  more  uniformity  among  the  state  laws  than  we  do  today.  The 
diversity  in  the  state  laws  shows  the  response  of  the  states  to  the  diverse 
business  conditions.  Where  conditions  are  the  same  in  all  the  states  we 
find  the  provisions,  which  are  framed  to  meet  these  particular  conditions, 
very  much  the  same.  New  York  might  with  perfect  justice  require  car- 
riers to  capitalize  at  the  cost  of  duplication,  because  their  traffic  is  certain, 
but  such  a  requirement  in  Idaho  would  be  prohilDitive  to  the  railroad  busi- 
ness. When  the  affirmative  urge  as  a  decisive  reason  for  federal  incor- 
poration that  it  will  bring  about  uniformity,  we  reply  that  if  it  is  to  do  this 
it  is  an  added  objection  to  their  measure. 

The  affirmative  have  conceded  that  the  laws  of  most  of  our  states  are 
good  and  they  have  argued  that  these  laws  have  been  evaded.  They  urge 
upon  us  that  the  corporations  go  to  the  states  with  the  laxest  laws  and 
take  out  their  charters,  and  that  because  of  this  one  state  may  enable  the 
corporations  to  evade  the  laws  of  all  the  other  states.  This  is  not  true 
to  the  extent  that  the  affirmative  have  contended.  But  the  impression  that 
the  affirmative  wish  to  leave  by  this  argument  is  that  under  their  system 

63 


Debate:    Federal  Incorporation 

no  evasion  is  possible.  This  is  absolutely  unsound.  The  incorporation 
law  of  Congress  can  be  evaded  just  as  easily  and  by  practically  the  same 
means  as  the  laws  of  any  particular  state  are  evaded.  Suppose  the  United 
States  Steel  company  should  be  compelled  to  take  out  a  charter  under  a 
federal  incorporation  law  strict  enough  to  accomplish  the  ends  the  affirma- 
tive seek.  Part  of  this  company's  business  is  the  manufacture  of  steel, 
part  the  selling  of  the  product.  A  holding  corporation  could  own  and 
regulate  all  the  manufacturing  plants  and  an  entirely  distinct  corporation 
be  organized  to  ship  and  sell  its  products.  The  latter  corporation  would 
be  subject  to  the  federal  law,  but  the  former  would  not  be  since  the  pro- 
cess of  manufacturing  is  not  interstate  commerce.  There  are  a  number 
of  ways  that  this  could  be  done.  The  corporation  could  sell  F.  O.  B.  and 
buy  C.  O.  D.  and  thus  cease  to  be  engaged  in  interstate  commerce.  I  do 
not  wish  to  be  understood  as  advancing  against  the  affirmative  measure 
the  argument  that  it  could  be  evaded,  but  I  do  wish  you  to  understand 
that  their  measure  in  this  respect  stands  on  no  better,  if  on  as  good  a  basis, 
as  the  present  system. 


First  Aflarmative,  Mr.  Gilbert,  Northwestern. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  negative  say  that  the  introduction  of  a  federal  charter  would 
cause  an  industrial  revolution,  that  conditions  must  change  in  the  twink- 
ling of  an  eye.  The  question  makes  no  reference  to  the  time  which  should 
be  taken  to  effect  the  change.  No  reason  has  been  given  why  there  need 
be  any  interruption  or  cessation  of  business.  The  mere  transfer  of  the 
charter  from  the  state  to  the  federal  government  would  cause  no  revo- 
lution, as  is  well  illustrated  by  the  continual  changing  of  state  banks  to 
national  banks.  But  perhaps  the  negative,  when  they  speak  of  industrial 
revolution,  have  in  mind  the  great  change  which  some  corporations  would 
undergo  in  being  transferred  from  the  lax  and  liberal  regulation  of  the 
states  to  the  more  efficient  control  of  the  federal  government.  If  so  we 
should  hail  the  revolution  which  would  bring  financial  safety  and  greater 
industrial  prosperity. 

The  gentlemen  fear  centralization.  We  deny  that  the  federal  charter 
would  increase  centralization.  As  President  Roosevelt  puts  it,  "It  is 
merely  looking  facts  in  the  face,  and  recognizing  that  centralization  in 
business  has  already  come  and  cannot  be  avoided  or  undone."  That  it 
means  an  extension  of  federal  activity,  we  admit,  but  it  is  a  necessary  and 
legitimate  extension.  The  negative  have  quoted  Mr.  Stimson  to  the  effect 
that  90  per  cent  of  the  civil  and  property  rights  would  be  transferred  from 

64 


Debate :     Federal  Incorporation 

state  to  federal  control,  but  they  have  failed  to  meet  the  challenge  of  the 
affirmative  to  show  wherein  a  federal  charter  would  cause  such  a  transfer. 
They  quote  Prof.  Wilgus  as  supporting  the  views  of  Stimson,  but  Prof. 
Wilgus  in  Vol.  II.  of  the  Michigan  Law  Review  (p.  393)  says  that  this 
fear  is  imaginary. 

Every  corporation,  says  the  negative,  which  transacts  any  interstate 
commerce  would  be  compelled  to  take  out  a  federal  charter.  The  courts 
have,  up  to  the  present  time,  only  decided,  in  specific  cases,  with  all  the 
facts  before  them,  that  such  and  such  an  act  was  or  was  not  interstate 
commerce.  The  negative  are  assuming  the  function  of  the  Supreme  Court 
when  they  say  that  every  corporation  doing  an  interstate  business  is  eiv- 
gaged  in  interstate  commerce.  We  submit  that  a  more  practical  view 
would  be  that  a  corporation,  a  considerable  part  of  whose  business  is  inter- 
state commerce,  would  be  held  to  be  engaged  in  interstate  commerce.  Such 
an  interpretation  of  the  question  would  include  but  a  very  few  of  the 
smaller  corporations. 

The  federal  charter  would  not,  as  the  negative  claim,  deprive  the 
states  of  their  revenue.  The  taxation  of  property  situated  within  the 
state  would  be  left  to  the  state  as  it  is  at  present.  This  is  true  in  the  tax- 
ation of  the  national  banks.  As  for  charter  fees  they  are  at  present  mostly 
received  by  a  few  states,  which  is  not,  to  say  the  least,  ideal  taxation. 
Those  charter  fees  would  go  to  defray  the  expenses  of  the  government 
Bureau.  However,  the  federal  charter  would  offer  a  means  of  remedying 
the  present  chaotic  condition  of  corporate  taxation  by  the  states. 

The  negative  tell  us  that  the  problem  is  a  new  one,  and  that  the  states, 
through  the  public  utilities  laws,  state  commissions  and  legislative  libraries 
are  tending  toward  a  correction  of  the  present  evils.  True,  these  show 
a  local  awakening  to  local  needs,  show  an  aroused  public  sentiment,  a 
movement  to  educate  the  people — but  this  does  not  secure  efficient  regu- 
lation of  interstate  corporations ;  it  does  not  vindicate  the  present  system. 
The  negative  have  failed  to  show  one  instance  where  uniformity  of  state 
laws  has  been  secured.  We  demand  something  more  than  libraries,  com- 
missions and  tendencies. 

Congress,  we  are  told,  would  not  be  likely  to  improve  the  present 
corporation  laws,  in  providing  for  the  issuing  of  federal  charters.  But 
the  gentlemen  claim  that  we  now  have  good  federal  laws,  and  they 
hope  for  further  good  federal  legislation.  Is  it  not  then  inconsistent  for 
them  to  distrust  that  same  body  in  regard  to  the  passing  of  a  good  incor- 
poration law  ?  The  practical  question,  we  believe  is :  Whether  the  public 
will  concerning  a  matter  which  affects  the  people  of  all  the  states,  can 
better  be  expressed  through  46  diverse  and  independent  state  legislatures, 

65 


D^BAT^:      FEDERAL  INCORPORATION 

or  through  one  central  authority,  created  by,  and  responsible  to  all  the 
people. 

Second  Negative,  Mr.  Marshall,  Chicago. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  gentleman  who  has  just  spoken,  as  well  as  his  colleagues,  have 
told  you  that  New  Jersey,  Delaware  and  West  Virginia  charter  corpora- 
tions to  operate  in  other  states,  that  the  bad  laws  of  a  few  states  can  nul- 
lify the  good  laws  of  all  the  remaining  states,  and  that  it  is  impossible  to 
secure  uniformity  of  action  among  46  against  interstate  corporations. 
We  contend  that  every  state  has  adequate  power  to  regulate  any  foreign 
corporation  doing  business  within  its  borders,  and  that  uniformity  of 
action  among  any  number  of  states  is  absolutely  unnecessary.  Take,  for 
example,  any  corporation  chartered  in  New  Jersey,  that  wants  to  do 
business  in  Illinois.  As  far  as  business  that  crosses  the  state  Hne  is 
concerned,  that  is  interstate  commerce  and  cannot  be  interfered  with  by 
the  state  of  Illinois;  but  as  regards  the  transacting  of  business  within 
the  state  such  as  buying,  selling,  storing,  contracting  or  distributing,  that 
is  purely  domestic  business  and  the  state  of  Illinois  can  lay  down  any 
terms  upon  which  a  foreign  corporation  desires  to  come  into  the  state 
and  engage  in  any  of  that  domestic  business.  If  there  is  a  single  cor- 
poration chartered  by  the  state  of  New  Jersey,  and  if  it  possesses  any 
of  the  evils  of  which  my  opponents  have  spoken,  the  state  of  Illinois 
can  regulate  those  evils  if  that  corporation  wants  to  do  business  within 
the  state.  If  it  is  overcapitalized,  Illinois  can  put  a  tax  on  its  capitali- 
zation; if  it  practices  interholding,  Illinois  can  prohibit  that;  if  it  is 
secret  and  dishonest,  Illinois  can  compel  publicity.  Now,  my  worthy 
opponents,  you  have  charged  New  Jersey  with  flooding  this  country  with 
dishonest  corporations.  Here  are  the  three  great  evils  of  which  you 
have  spoken.  If  this  is  the  ground  upon  which  you  rest  your  attack 
against  the  negative,  if  mental  weakness  is  the  negative  case,  then  I 
challenge  you  to  show  me  a  single  state  that  does  not  have  adequate 
power  to  regualte  any  foreign  corporation  doing  business  within  its 
borders. 

The  inconsistency  in  your  case  is  apparent  to  all.  The  first  speaker 
spent  one-third  of  his  time  showing  you  how  dishonest  and  corrupt 
interstate  corporations  are;  then  the  third  speaker  told  you  that  a 
large  number  of  foreign  corporations  are  doing  business  in  this  state 
and  that  the  people  of  Illinois  want  them  to  remain  here  because  they 
promote  industry  and  carry  on  25%  of  our  business.  What  I  would 
like  to  know  is,  are  the  corporations  chartered  in  New  Jersey  as  bad 

66 


De)bat^:     Federal  Incorporation 

as  the  first  speaker  said  they  were  or  are  the  people  of  Illinois  as  foolish 
as  the  third  speaker  tried  to  make  them  appear  ? 

In  conclusion  let  me  impress  those  points  upon  you.  I  pointed 
out  to  you  in  my  opening  speech  that  this  proposition  would  include 
hundreds  of  thousands  of  corporations  that  do  not  need  federal  con- 
trol; that  it  would  change  our  entire  political  system,  do  away  with 
the  great  democratic  principle  of  local  self-government  and  establish  a 
bureaucracy;  that  it  would  demoralize  our  entire  financial  and  industrial 
institutions ;  and  our  opponents  have  failed  to  meet  these  arguments.  I 
showed  you  that  this  measure  was  so  impracticable  it  could  never 
be  introduced  and  when  our  opponents  cited  the  National  Banking 
system  as  a  precedent,  we  refuted  their  contention  so  completely  that 
the  National  Banking  system  has  entirely  disappeared  from  this  debate. 
I  asked  our  opponents  to  show  how  they  could  take  500,000  corporations 
of  all  sizes  and  character  and  examine  and  recharter  them.  I  put  that 
question  to  you  as  business  men  (well.  Til  include  the  women  too)  and 
our  opponents  have  not  attempted  to  answer  the  argument.  And  if  for  no 
other  reason  than  the  mere  impracticability  of  this  measure  we  hold 
that  it  should  not  stand. 


Second  Affirmative,  Mr.  Evans,  Northwestern. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  negative  say  that  local  control  will  be  taken  from  the  states. 
Nothing  of  the  kind.  The  federal  government  will  lay  down  general 
provisions  in  the  charter  and  leave  all  the  local  control  to  the  states, 
just  as  now,  as  the  gentlemen  say,  Illinois  regulates  the  business  of  a 
New  Jersey  corporation,  which  that  corporation  transacts  in  this  state. 

The  negative  have  contended  that  the  states  are  better  able  to  create 
corporations  suited  to  local  needs.  If  that  is  the  case,  how  do  they 
account  for  the  fact  that  60%  of  our  corporations  are  chartered  in 
the  state  of  New  Jersey?  These  vital  matters  pertaining  to  corporate 
existence  do  not  need  to  be  changed  with  the  locality.  Besides,  these 
are  national  matters,  and  should  be  decided  in  the  interests  of  the  whole 
country,  rather  than  in  the  interest  of  some  one  state. 

The  negative  claims  that  an  industrial  revolution  would  be  brought 
about  by  the  change  from  a  state  to  a  national  charter.  That  is  not 
the  case.  It  would  not  be  necessary  for  any  sound  corporation  to  be 
dissolved  or  even  to  suspend  business  for  a  day.  Officers  could  make 
application  for  the  federal  charter.  Matters  of  structure  and  manage- 
ment could  be  changed  to  meet  the  new  requirements,  and  after  the 

67 


Debate:    Federal  Incorporation 

date  set  for  the  enforcement  of  the  new  law,  the  old  corporation  changed 
to  meet  the  new  conditions  could  continue  to  do  business  without  inter- 
ruption. The  change  would  ibe  no  more  drastic  than  that  of  the  banks, 
from  state  to  federal  charters.  When  the  national  incorporation  of 
banks  was  first  instituted,  thousands  of  state  banks  changed  to  the 
national  charter  from  the  state  charter  without  interruption  or  loss  of 
business. 

It  is  true  that  a  state  may  exclude  the  local  business  of  a  foreign 
corporation,  but  a  state  cannot  exclude  transportation  corporations,  nor 
the  interstate  commerce  business  of  industrial  corporations.  So  long  as 
two  or  three  states  will  permit  one  of  the  big  industrial  corporations  to  do 
business  within  their  borders,  they  can  carry  on  their  interstate  com- 
merce over  the  whole  country  regardless  of  the  state  law.  We  would 
call  your  attention  to  the  fact  that  local  industry  of  a  corporation  may 
be  very  desirable,  while  there  are  evils  in  the  form  and  management  of 
the  corporation.  Excluding  this  local  business  does  not  protect  a  state 
from  the  unsound  industrial  conditions  caused  by  corporate  evils.  If 
a  state  excludes  the  local  business  of  a  foreign  corporation,  that  local 
business  is  merely  transferred  to  another  state  and  the  corporate  evils 
are  not  cured.  The  state  loses  the  desirable  industry,  while  the  evils 
remain.     States  are  inviting  business  and  not  excluding  it. 

We  object  to  a  system  that  would  cripple  business  in  the  attempt 
to  cure  corporate  evils.  It  would  be  better  for  the  national  government 
to  create  corporations  of  such  a  form  and  management  that  no  state 
would  desire  to  exclude  them. 

We  would  call  your  atteneion  to  the  fact  that  the  negative  plan 
of  securing  concerted  action  of  all  the  states  on  matters  of  national 
importance,  by  means  of  the  conference  and  convention  method,  was 
given  a  thorough  trial  under  the  articles  of  confederation  and  failed  abso- 
lutely.. Both  the  negative  and  the  affirmative  agree  that  this  is  a  mat- 
ter of  national  importance.  The  character  of  a  great  corporation  affects 
not  only  the  people  of  the  chartering  state,  but  likewise  all  people 
living  within  the  influence  of  the  business  world. 

It  is  contrary  to  our  principles  of  government  that  one  state  which 
has  no  control  over  the  interstate  commerce  of  a  corporation,  and  con- 
trols but  a  small  part  of  its  local  business  should  create  the 
corporation.  It  is  in  harmony  with  our  dual  form  of  government 
that  the  federal  government,  which  controls  all  the  interstate  business 
of  a  corporation  and  which  represents  all  the  states  wherein  that  cor- 
poration does  local  business,  should  create  the  corporation.  Why 
should  the  determination  of  a  national  matter  be  parceled  out  among 
the  states?    Why  should  Congress  control  this  national  matter  in  that 

68 


De;bate:     Fe:de:ral  Incorporation 

way  any  more  than  it  would  control  other  national  matters  through 
state  action?  Congress  is  the  only  place  in  this  country  where  a 
national  sentiment  can  be  formed  and  crystallized  into  a  law.  There- 
fore, we  contend  that  this  matter  of  national  concern  should  be  con- 
trolled by  Congress. 


Third  Negative,  Mr.  Moulton,  Chicago. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

My  immediate  predecessor  has  just  contended  that  local  control  will 
remain  with  the  states;  that  Congress  will  outline  only  general  features 
in  the  charter  and  leave  all  the  rest  to  the  states.  And  to  prove  this  he 
says  that  Illinois  regulates  all  new  Jersey  corporations  doing  business  in 
this  state,  conceding  thereby  the  fundamental  contention  of  this  debate, — 
that  any  state  can  protect  itself  against  a  bad  corporation  from  another 
state.  The  gentlemen  have  given  up  their  objection  to  the  present  sys- 
tem.   We  hardly  hoped  for  so  frank  an  admission. 

They  state,  furthermore,  that  it  is  not  incumbent  upon  them  to  show 
what  Congress  will  do.  They  contend  that  all  they  have  to  do  is  to  show 
that  the  measure  is  practicable,  and  now  I  submit  that  they  have  not  ad- 
vanced one  single  point  which  is  a  practical  suggestion.  They  have  mere- 
ly enumerated  the  evils  of  the  present  system,  and  said  that  Congress 
would  check  them.  If  this  is  a  practical  suggestion,  we  ask  the  gentle- 
men to  give  us  some  practicable  suggestions. 

They  have  spent  considerable  time  repeating  that  New  Jersey 
charters  60%  of  all  the  corporations  of  the  country,  and  collects  revenue 
therefrom  which  belongs  to  other  states.  According  to  Mr.  Frost,  who 
has  compiled  the  corporation  laws  of  all  the  states,  New  Jersey  has  the 
highest  tax  rate  for  corporations  of  any  state  in  the  union  except  one. 
Yet  statistics  furnished  by  Professor  Rigley  of  Harvard  show  that  New 
Jersey  collects  annually  only  one  and  one  half  millions,  whereas  New 
York  receives  almost  five  millions— three  times  as  much.  Even  Massa- 
chusetts with  its  excellent  corporation  law,  collects  almost  as  much  as 
New  Jersey,  and  Pennsylvania  is  not  far  behind.  In  the  face  of  these 
facts  the  statement  that  New  Jersey  regulates  and  controls  three-fourths 
of  all  the  corporations  of  the  country,  does  not  hold. 

There  have  been  several  points  since  the  beginning  of  this  debate 
which  the  affirmative  have  studiously  avoided  or  failed  absolutely  to 
answer.  We  ask  the  gentlemen  to  show  us  what  are  the  evils  in  these 
local  corporations — ^these  saw-mills,  these  creameries,  these  factories, 
that  demand  federal  regulation ;  we  ask  them  to  show  us  that  local  con- 

69 


DjSbat^:    Federal  Incorporation 

trol  has  failed;  that  democracy  has  failed  and  that  bureaucracy  is  the 
only  remaining  alternative.  We  ask  the  gentlemen  to  show  us  how  they 
propose  to  correct  the  abuses  of  overcapitalization  of  these  corporations 
now  in  existence ;  how  federal  incorporation  is  to  check  rebates  and  dis- 
crimination, etc.  We  ask  them  to  justify  this  tremendous  change, 
rendering  industry  unstable.  These  points  they  have  failed  to  answer 
and  now  in  the  fairness  of  debate,  I  lay  this  burden  upon  the  last  speak- 
er of  the  affirmative — to  meet  us  upon  these  grounds. 

Bringing  this  affirmative  case  down  to  its  finality — what  are  its 
salient  points — its  impregnable  arguments?  You  know  that  every  case 
is  supposed  to  have  some  impregnable  arguments.  These  two  it  seems 
to  me  they  have  deemed  irrefutable :  ( 1 )  the  measure  would  give  us  a 
uniform  law;  (2)  it  would  prevent  the  few  states  from  nullifying  the 
good  laws  of  all  the  rest.  Has  the  negative  answered  these  propositions? 
We  believe  we  have.  We  have  shown  that  a  uniform  law  for  a  country 
of  such  vast  diversity  as  ours  is  undesirable.  Every  variety  of  industrial 
conditions  prevails,  and  a  law  suitable  to  manufacturing  in  New  England 
would  not  meet  the  requirements  of  our  agricultural  and  western  states. 

As  to  their  second  great  argument  we  have  shown  that  New  Jer- 
sey and  those  few  states  with  the  lax  laws  are  not  regulating  the  bifsiness 
of  the  entire  country  or  even  60%  of  it.  We  have  shown,  furthermore, 
that  every  state  can  protect  itself  against  foreign  corporations,  and  the 
gentlemen  have  admitted  that  Illinois  can  regulate  the  business  of  a  New 
Jersey  corporation  done  in  this  state. 

Those  were  the  issues  of  this  debate  and  we  believe  we  have  an- 
swered those  arguments.  The  negative  then  have  shown  that  the  propo- 
sition of  the  affirmative  is  impracticable,  inexpedient  and  unnecessary. 


Third  Affirmative,  Mr.  Arnold,  Northwestern. 

Mr.  Chairman,  Honorable  Judges,  Ladies  and  Gentlemen — 

The  last  negative  speaker  has  attempted  by  innuendo  to  leave  the 
impression  that  we  have  failed  to  show  that  federal  incorporation  would 
correct  the  abuses  of  the  present  system.  As  the  affirmative  have  re- 
peatedly said,  this  plan  would  prevent  the  abuses  by  controlling  the  in- 
ternal management  and  orga^iization  of  interstate  corporations.  Our  op- 
ponents complain  that  we  have  not  been  specific  enough  in  reference  to 
bad  laws  passed  by  the  states.  In  1906  New  Jersey  passed  a  law  for 
the  creation  of  railroads  to  transact  business  only  outside  of  that  state. 

70 


Debate:    Federal  Incorporation 

While  this  would  be  unconstitutional  in  a  number  of  states,  yet  it  shows 
that  a  few  states  with  lax  laws  have  a  corner  on  the  chartering  of  corpor- 
ations. 

They  tell  us  that  we  cannot  impeach  the  laws  of  all  the  states,  since 
but  a  few  have  loose  incorporation  laws;  and  yet  the  laxest  of  those 
states  is  New  Jersey,  and  with  an  area  less  than  Cook  County  and  a  pop- 
ulation less  than  Chicago,  that  state  charters  60%  of  the  corporations, 
proving  that  the  large  corporations  flock  to  these  lax  states  and  will  so 
long  as  one  has  inefficient  laws. 

The  negative  have  told  you  that  federal  incorporation  would  be 
revolutionary.  We  have  demanded  of  them  to  show  what  property  or 
local  rights  would  necessarily  be  taken  to  the  federal  government  under 
our  system  that  would  not  under  the  plan  they  advocate,  and  you  have 
surely  observed  their  silence  upon  that  question.  It  is  not  a  question 
whether  or  not  Congress  will  pass  a  federal  incorporation  law,  as  our 
opponents  desire  you  to  think;  that  is  not  what  we  are  here  to  discuss. 
It  is  not  whether  Congress  will  pass  such  a  law,  but  it  is  a  question 
whether  such  a  plan  enacted  by  Congress  would  not  be  more  expedient 
than  the  present  system. 

The  affirmative  have  repeatedly  asked  the  negative,  since  they  sup- 
port the  present  system,  to  show  how  either  the  states  or  the  federal 
government  can  remedy  the  present  evils  in  interstate  corporations,  and 
this  they  have  stubbornly  evaded. 

Now  let  us  review  the  affirmative  argument  in  its  entirety.  At  the 
very  beginning  of  this  debate,  we  submitted  as  a  basis  for  our  argument 
this  proposition:  That  the  present  method  of  controlling  corporations 
engaged  in  interstate  commerce  is  inherently  inadequate  and  presents  no 
hope  for  future  relief.  To  support  this,  we  established  that  the  present 
system  is  absolutely  incapable;  that  the  weaknesses  are  inherent;  that 
it  has  fostered  positive  evils;  that  there  can  be  no  hope  for  future  re- 
lief under  the  present  system,  since  the  national  Constitution  prohibits  the 
state  from  touching  the  internal  management  and  organization  of  inter- 
state corporations;  and  the  federal  government  cannot  reach  the  defects 
without  killing  the  business  and  paralyzing  industry ;  that  there  is  now  a 
positive  motive  inducing  inefficient  laws.  We  conclude  with  what  pro- 
gressive statesmen.  President  Roosevelt,  Secretary  Garfield,  and  Mr. 
Bryan  have  long  recognized:  that  a  change  from  the  present  control  of 
interstate  corporations,  has  been  made  necessary  by  the  unparalleled 
centralization  of  modern  industry;  that  methods  of  colonial  days  have 
been  vitiated  by  growing  conditions  of  the  20th  century. 

Our  second  fundamental  proposition  was  that  federal  incorpora- 
tion would  be  a  positive  and  practical  remedy  and  unattended  by  evils 

71 


Debate:    Federal  Incorporation 

of  a  serious  consequence.  To  establish  this  we  demonstrated  that  fed- 
eral incorporation  would  be  easily  administered ;  that  it  would  make  pos- 
sible the  correction  of  the  present  abuses;  that  it  would  be  just  to  all; 
and  in  harmony  with  our  dual  system  of  government.  Remember  under 
the  present  control  we  have  46  jurisdictions  frequently  acting  in  oppo- 
sition to  one  another.  Federal  incorporation  would  provide  one  uni- 
form jurisdiction.  The  present  system  is  rendered  impotent  because  of 
restrictions  of  the  national  Constitution.  Federal  incorporation  would  be 
efficient  because  it  would  be  co-extensive  with  the  thing  to  be  con- 
trolled,— the  National  government  would  both  create  and  control.  Com- 
plexity, uncertainty  and  chaos;  simplicity,  certainty  and  order — which 
shall  it  be?  Shall  we  control  a  national  power  with  a  local,  limited 
authority;  or  with  a  national  force,  adequate  in  power,  co-extensive 
with  the  thing  to  be  controlled?  The  affirmative  favor  recognizing  the 
industrial  progress  and  centralization  of  the  past  thirty-five  years  and 
conforming  to  it  with  adequate  control,  instead  of  trying  to  bend  down 
conditions  of  the  20th  century  to  fit  a  plan  established  in  the  18th 
century.  Upon  these  grounds  the  affirmative  rests  its  case  convinced 
that  it  would  be  more  expedient  that  "all  corporations  engaged  in  inter- 
state commerce  should  be  required  to  take  out  a  federal  charter  on  such 
provisions  as  Congress  may  by  law  prescribe." 


n 


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Appendix   B.     Federal   franchise   system   for   interstate   commerce- 
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Journal,  vol.  7  (Jan.  18,  1890);  59-60. 
Trusts  in  the  United  States.    Robert  Donald.    Contempt.    Rev.,  vol.  57  (June, 

1890);  829. 
The  present  legal  status  of  trusts.     S.  C.  T.  Dodd.     Harv.  Law  Rev.,  vol.  7 

(Oct.  25,  1893);  157-169. 
Monopoly  under  the  national  anti-trust  law.    W.  F.  Dana.     Harv.  Law.  Rev., 

vol.  7  (Jan.,  1894);  338-355. 
Trusts  their  own  corrective.    George  A.  Rich.     Pop.  Sci.  Mo.,  vol.  44  (Apr., 

1894);  740. 
The  meaning  of  corporations  and  trusts.     Logan  G.  McPherson.     Pop.  Sci. 

Mo.,  vol.  45  (July,  1894);  289-313. 
Capitalistic  monopolies  and  their  relation  to  the  state.    J.  W.  Jenkins.     Pol. 

Sci.  Quar.,  vol.  9  (Sept.,  1894);  486. 
Economic    and    uneconomic    legislation    against    the    trusts.     F.    H.    Cooke. 

Amer.  Acad,  of  Pol.  and  Soc.  Sci.  Annals,  vol.  5  p.  569. 
Trust  abuses  and  remedies.     J.   Dowd.     Amer.  Acad,   or   Pol.   and  Soc.   Sci. 

Annals,  vol.  5,  p.  573. 
How  to  deal  with  trusts.    Am.  Law  Rev.,  vol.  29  (Mar.-Apr.,  1895);  284. 
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vol.  1,  p.  411. 
Recent  legislation   in   restraint  of  trade.     C.   F.   Beach,  Jr.     Amer.  Jour,   of 

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79  (Mar.,  1897);  377-385. 
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The  truth  about  trusts.     Roswell  P.  Flower.     Gunton's  Mag.,  vol.  13,  p.  25L 

74 


Debate:    Federal  Incorporation 

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Trusts:   their   causes  and  their  remedy.    M.   Butler.    Arena,  vol.   19   (Mar., 

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The  concentration  of  industry  in  the  U.  S.    William  F.  Wiloughby.    Yale 

Rev.,  vol.  7,  p.  72. 
Recent  legislation   and  adjudication   on  trusts.    Jeremiah   W.   Jenks.    Quar. 

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Remedies  for  trusts.     Indep.,  vol.  51,  pp.  2634-2636. 

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Bryan's  trust  remedy.    Public  opinion,  vol.  27,  p.  388. 

13,  pp.   198-212  and  264-278. 
New  Jersey  and  great  corporations.     E.  Q.  Keasbey.    Harv.  Law  Rev,  vol. 
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>/  The  proposed  constitutional  amendment.    Nation,  vol.  70,  p.  392. 
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Federal  control  of  trusts.    Alton  D.  Adams.    Pol.  Sci.  Quar.   (Mar.,  1903); 

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11,  pp.  273-295. 
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Mr.  Garfield's  report.     Am.  Rev.  of  Rev.,  vol.  31,  p.  142. 
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lee  Prentice.     Col.  Law  Rev.,  vol.  5,  pp.  77-106. 
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Federal  regulation  of  corporations:  a  public  necessity.    W.  J.  Curtis.    Green 
Bag,  vol.  17,  pp.  133-141. 

75 


DEBATE:    Federal  Incorporation 

^/Federal  control  of  corporations.    Thos.  Thacher.    Yale  Law  Jour.,  vol.  14, 

pp.  301-311. 
\/The  exclusiveness  of  the  power  of  Congress  over  interstate  and  foreign  com- 
merce.   J.  S.  Rogers.    Am.  Law  Reg.,  vol.  53,  pp.  529-571  and  593-640. 
^/Congress  and  the  regulation  of  corporations.    E.   P.   Prentice.    Harv.   Law 

Rev.,  vol.  19,  pp.  168-199. 
National  incorporations.     H.  W.  Chapin.     Col.  Law  Rev.,  vol.  5,  pp.  415-453. 
Industrial    corporations.     Federal    incorporation  for  those   doing  an    inter- 
state business.     J.  Bascom.     Moody's  Mag.,  vol.  1,  pp.  401-407. 
How  Congress  can   deal  with   the  trusts.    E.   B.  Whitney.    Indep.,  vol.  58 

(Jan.-Mar.),  pp.  303-306. 
Remedies  for  corporation  evils.     Indep.,  vol.  58  (Jan.-Mar.),  pp.  47-48. 
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132. 
President  Roosevelt  and  Corporate  Wealth.    A.  W.  Dunn.    Am.  Rev.  of  Rev., 

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President  Roosevelt  and  the  trusts.    S.  J.  McLean.    Quar.  Rev.  (July,  1907), 

pp.  28-57. 
Control   of   corporations — Wrong   doers   of   great   wealth.    Indep.    (Oct.   10, 

1907),  pp.  840-842. 
The  federal  power  over  trusts.    J.  M.  Beck.    Amer.  Acad,  of  Pol.  and  See. 

Sci.  Annals,  vol.  24,  pp.  87-110. 
Growth  of  federal  authority  over  interstate  commerce.    Albany  Law  Jour., 

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Federal  control  of  corporations.     Ry.  World,  vol.  48,  p.  443. 
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National  incorporation  as  a  panacea.    Com.  &  Financial  Chronicle,  vol.  79, 

pp.  75^77. 


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